15. As a banking market becomes more competitive, we would expect interest margins to become: Select...

15. As a banking market becomes more competitive, we would expect interest margins to become:

Select one

A. narrower

B. negative

C. wider

D. zero

Expert Solution

Answer : Narrower

Explanation to the answer :

Competition within the banking sector led to positive outcomes for customers, including better value for money, as evidenced by decreasing net-interest margins from the 1980s through to the mid-2000s.

Ultimately, increased competition for funding combined with price competition has led to net interest margins (NIMs) reducing significantly over time. A differential of over 450 bps percentage points at the start of the 1980s has almost halved, with NIMs under 250 bps since 2005. However, the gap between the major banks and other banks has widened in recent years .Between 2010 and 2012, major bank NIMs decreased to around 225 bps, and they remain at this level in 2013.

Overall, the banking market is robust and competitive. As detailed in previous Sections, this has been supported by a range of factors, including:  price matching and competitive pricing behaviours;  narrowing net-interest margins in the long-term;  dis-intermediation and the entry of new competitors and business models along the supply chain;  falling barriers to entry as a result of new technologies;  innovation activities within the market; and  stability and robustness through the GFC.

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15. As a banking market becomes more​ competitive, we would expect interest margins to​ become: Select...

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