Question

Please I need the asnwer in 30 minutes or less, please use your own words and answer correctly

As we have discussed that, the financial industry has experienced a lot of consolidation in the past 30-40 years. Is the consolidation of the banking industry good for financial institutions? What about for depositors and firms? Please justify your answer including at least two benefits or costs that consolidation brings to financial institutions and at least two benefits or costs that consolidation brings to depositors and firms. Please provide detailed arguments.

Answer 1

In the financial services sector, there has been a quite a bit of consolidation over the years owing to the growth in the industry and also because of larger players becoming more dominant and to acquire newer technologies. Overall for the sector, this is a positive development as it has resulted in bigger entities emerging with comparitively better credit profile and thus able to raise money at a more competitive rates.

The benefits of mergers for the financial companies is that larger and more robust organizations have emerged from the amalgamation of the companies. Also financial intermediation has been more efficient due to the fact that larger companies have lower overhead expenses as compared to a larger number of smaller entities.

For the customers, the consolidation has meant that the robustness of the deposit taking or lending entity has improved thus reducing any default risks. For firms, one possible costs would be slight increase in the borrowing costs due to higher concentration of lenders and consequent rise in seller power.