Industrial Organization Approach to Banking: Production, Intermediation & Modern Methods -, Appunti di Mercato Finanziario

Scarica Industrial Organization Approach to Banking: Production, Intermediation & Modern Methods - e più Appunti in PDF di Mercato Finanziario solo su Docsity! How the banks is considered in Industrial Organiza�on Approach The industrial organiza�on approach examines the structure of firm and market considering the bank as a firm, analysing the determinants and looking at equilibrium of banking sector, taking into account all type of compe��on In par�cular the bank is considered as an independent en�ty that op�mally react to the environment, so we don’t consider the bank sector as a passive aggregate. Measuring the ac�vity of the bank The empirically measuring of banks’ ac�vi�es explored the es�ma�on of banks’ cost and produc�on func�ons This discussion will dis�nguish three branches: 1 The produc�on approach 2 The intermedia�on approach 3 The modern approach The first two approaches apply the classical microeconomic theory of the firm to the banking sector. The third approach goes further and modifies the classical theory of the firm by incorpora�ng some specifici�es of banks’ ac�vi�es. The produc�on approach The produc�on approach describes the banking ac�vi�es as the produc�on of services to depositors and borrowers. and the only inputs are labor and physical capital. Produc�on approach suffer from a basic problem: what is the relevant measure of output volume? Is it the number of account, the number of opera�ons on these accounts, or the dollar amounts? In order to solve this issue we can use a mul�product cost func�on. The mul�product approach The mul�product approach assumes that the total volume of loans granted by the local branches is different from the total volume of deposits collected. Local branches can be financed by the headquarter. In this approach the input of the main branch are essen�ally financial capital and the output are measured by volume of loans and investment outstanding. The modern approach The novelty of the modern approach to the measurement of banks’ ac�vi�es consists in incorpora�ng the specifici�es of these ac�vi�es, namely risk management and informa�on processing, into the classical theory of the firm.