Competition and Scope of Activities in Financial Services
This article analyzes the costs and benefits of different degrees of competition and different configurations of permissible activities in the financial sector and discusses the related implications for regulation and supervision. Theory and experi...
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| Language: | English en_US |
| Published: |
Washington, DC: World Bank
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/12/17580168/competition-scope-activities-financial-services http://hdl.handle.net/10986/17134 |
| Summary: | This article analyzes the costs and
benefits of different degrees of competition and different
configurations of permissible activities in the financial
sector and discusses the related implications for regulation
and supervision. Theory and experience demonstrate the
importance of competition for efficiency and confirm that a
competitive environment requires a contestable system
meaning one that is open to competition-but not necessarily
a large number of institutions. A competitive banking system
can improve the distribution of consumer credit, enhance the
corporate sector's access to financing, and mitigate
the risks of financial crises. In an open market, in which
services and products are provided in response to market
signals, financial institutions respond by offering a wider
scope of financial services. The optimal institutional
design for supervisory functions is less obvious. This
article reviews alternative frameworks for financial
services markets from an economic perspective using
experiences in several countries as a guide. Authors focus
first on the role of competition in the financial sector and
the tradeoffs between competition on the one hand and
stability and innovation on the other. Authors next examine
alternative structures of financial services dictated in
many countries. |
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