Question

How does consolidation in our financial system affect competition for financial services? Is convergence in our financial system good or bad for competition? please help!! thank you

Answer 1

Effect of consolidation on financial services: The effect of consolidation on our financial institution and services is mixed. It means consolidation may have increased, decrease, or have no competition for financial services. But, the experts told that only small banks can become more efficient as their costs will get reduce. So, they can take advantage of potential economies of scale because small banks deal with economies of scale. Consolidation will be a benefit for the small financial services institutions. But, the effect of consolidation on financial services depends on the demand and supply in the economy. How they enter into the new market, what barriers they will face, these all are the variables that affect the competitiveness of financial services. But experts believe that the investment institutions will get more power with the help of consolidation. The effect of consolidation on a small business can welcome the price risk which may lead to less lending of money to the customers by the consolidating services.

The convergence in our financial system has a mix type of competition it is good because it has increased the competition between the new business. But it is not bad for some businesses because foreign financial players are entering the market which is making it difficult for national financial players to handle the rivalry and competition.