Sunday, May 5, 2019
Financial intermediation Essay Example | Topics and Well Written Essays - 3000 words - 1
Financial intermediation - judge ExampleIt was based on the efficiency hypothesis model and was distinguished from the imminent failure model. afterward analyzing 33 mergers during the 1867-1935 period, the author found that the consolidation and integration (which result as consequences of mergers and acquisitions) reduce systemic fortune. An serious variable in this finding is the identification of the role of diversification in the dilution and management of risks. The study in addition proposed the empirical validity of concentration-stability hypothesis as a framework for explaining the stability of Canadian banks. It was found that bullnecked concentration of banks, which came as an offshoot of mergers and acquisitions, was a strong predictor of stability. What is good about the composition The paper is significant for several reasons. It contains important shrewdnesss on the developmental evolution of the Canadian banking sector. The author has likewise proposed and e xplained insights that could enrich the extant lit on the positive impact of mergers and acquisitions (M&As). The successful use and evaluation of hypotheses and the systematic sagaciousness approaches included can provide helpful insights to researchers interested in the same or in relate research topics. These constitute the reasons wherefore it is worthy of publication. This section will explain this in detail. An important insight postulated by the study is the explanation why the Canadian banking system outperformed the United States banking system during the Great low gear (p.6). The author was able to provide important evidences, most particularly, the argument that Canada avoided the crisis by maintaining a banking system typified by risk diversification through branching (p.6). This aspect in the study contributes an insight to the body of literature in regard to the incidence of bank failures, vulnerabilities and risks that could be avoided. The emerging principle is t hat mergers have cushioned the Canadian banking system from the Great Depression by diluting the risks. Here, a theoretical evidence was presented the cases of the cross-province acquisitions from 1900-1931led to risk diversification because the spate of business for each bank in a consolidated financial institution is based on its home province, hence, the risk for the entire organization is allocated according to its branches, operating in their respective locations. Furthermore, the study also explained the differences between mergers and acquisitions than simply branching out. If the bank is concerned with risks or is interested with diluting it, branching would be an plectrum because it also meant the diversification of operation across Canada. However, it was explained how M&As have different degree of risk exposure than branching, effectively classifying one from the other. If one does think about it, mergers and acquisitions diversify through integration and hookup of res ources whereas branching diversifies by expanding and spending resources. In the former, there is an inward flow of resources where the latter sees an outflow. This is the reason why in the studys comparative analysis, it was found that out of the 10 chartered banks that remained in business in 1935, sextuplet had been involved in acquisitions, and that only one out of the 26 failed banks was involved in bank consolidation (p.9). The study used Fishers exact test to evaluate the relationship it revealed that bank consolidations did not result or
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