Literature Review About Activities And Services Of Banking

Published Date: 02 Nov 2017

Many financial institutions are operating in every country. The bank is a one of the financial institution. But it differs from other firm because the bank collects money from customer as a deposit and gives money to customer as a loan. So the bank acts as financial intermediaries between the depositors and borrowers. Deposits are liabilities to the bank. Deposit must be maintained by the bank to maximize the profit (Shelagh Heffernan2005). The bank acts as a debtor and creditor, principal and agent, bailer and bile and mortgagor and mortgagee between the customer and the bank. Banking liked to do more successful than others in Worldwide after 1970, banks took action for continuous improvement among other financial institution. In 1970, the bank of England published their true cost and profit report for first initiative (Ravid Rogers 1999). Before 1970 the banks had used various type of accounting system to measure their financial performance. Introduction of the new accounting system was helped to identify the competitor and credit control and also helped to improve their financial performance. This system was helped to remove regulatory restriction on bank lending. Most necessarily, it eliminated the clearing banks right to someone cheat on interest rate. The clearing bank urged to compete much more with everyone and compete with other financial service institution. This was happened in 1974 by the secondary banking crisis. Smaller banks had engaged to lend some risky property that intimidates to make the economy situating with less strong. The bank act 1979 was formalized according to the bank of England supervisory role and status of bank. This act demonstrated criteria connecting to the liquidity and capital adequacy, managerial integrity, having particular activity of business. Globalisation is a driver in developing banking activity. The US opened offices in UK because of regulatory restrictions at home and this bank quickly captured the big amount of shares in the UK market. But US bank did not move within the UK market in 1989 because the UK market had 60 per cent of shares in the market.

Deregulation of the building the society is another development in banking activities. In beginning period , group of banks obtained fund from financing home purchase and depositor ,recently the building the society compete with the commercial banking services and mortgage lending. This act was changed to increase that above twenty five percent of their commercial business was allowed to be in non belonging services that contain credit card, money transaction, stock brokers, and personal banking. Building societies are a powerful competitor to bank. It has special feature than other clearing bank

A further important trend position increasing competition was the deregulation of stock exchange and investment banking in 1986, resulting from Big Bang. It very difficult to see yet in another market financial service. This was led to expanding the commercial banking. Big Bag helped to commercial bank to enter investment in noticeable important scale. Various type of investment banking already divided by the law under the Big Bang. Technology plays a key role in the banking activity. This led to increasing competition. Wholesale and retail banking entire nature was changed after introduction of new technologies. New and more low cost delivery system became in retail side such as ATMs, phone banking, banking in airport, railway station, and shopping malls.

2.1.1 Activities and Services of Banking

The banks have expanded their services for the traditional important purpose. Generally the banking sector consists of processing in niche markets and the banks agree to give wide range of additional financial product. These financial products include saving and current account , long term and short term loan , insurance services, real estate service, and stock broking services. Bank’s non financial service includes unit trust, pension fund, stock broking, and insurance and real estate services. Almost all banks are also active in off balance sheet business to improve their profitability. (Shelagh Heffernan 2005). The bank maintains financial statement such as balance sheet and profit and loss account to measure their financial performance. Main source of bank is a customer deposit. Deposits are reported on the balance sheet as a liability. These deposits are used by the bank for investment. This is assets for the bank. The bank capital arises from different between the total liability and total asset. On the other hand bank increasing their fund by issuing bonds and equity. (Barbara Casu 2006)

Payment Services

An essential need for the customers provide by banks is that they agree to give ability to do payments.. According to the Heffernan (2005) payment system is defined as an intermediate function and it’s facilitate transferring claims ownership in banking sector. Different type of alternative method came from after the twentieth century. Very costly system is a cheque payment system. Because it is very costly to operate even with up to date electronic method of dealing and storing and bank has liked to introduce this cheque system from customer to customer and from bank to bank. Another system is a credit transfer system. It is also called bank giro system where bank pays straight to beneficiary’s bank account according to the customer instruction. Mostly this system is used by the consumer to pay invoices for the product order. Standing order is used by the customer, if they pay any fixed amount of money in similar interval time. Banks make payment from particular customer account to any other company or individual until the customer make any change standing order instructions. Rather than another method of payment system is direct debits. Normally electricity, gas, telephone bill or water bill are paid by under this system. Generally some institution such as local authorities and public utilities are receiving a big amount of money as a regular payment. So this method is selected by these institutions to receive direct debit from the customer account. (D.P .Whiting 1994)

Direct Debit

Claims upon payer’s account

Beneficiary’s Bank

Payer

authorises

beneficiary

to claim and bank to pay

Payer’s Bank

Payer

Instructs bank to pay

Payer

Bank pays beneficiary

Payer’s Bank

Beneficiary’s Bank

Standing Order

( Source Mastering Banking , 1994 ,D.P .Whiting )

Figure1 Direct debit and standing Order

Deposit and Lending Services

One of the main services of the bank is a deposit and lending services. Most of the bank offer mainly current account, deposit account, and saving account. Now a day’s bank offers many different type of account to compete with competitors and attract the customer. Banks design current account to attract the customer with different facilities. The current account holders have authority to withdraw money from bank by using cheque. In recent year bank gives further facilities to current account holder such as interest on the cleared balance from day to day, provide debit card to withdraw money from ATM, and possibility to changing fund by switch. Current account has the main different facilities. It includes the acceptance of deposit, credit provision, and it helps to transferring fund to third party. (Whiting, 1994). Banks design saving account to give a house for saving. Interest payments are provided to saving account. Bank gives ATM card to their customer to withdraw money easily and quickly. Some banks suggest a particular type of savings account for customer who is ready to pay in a similar sum and the bank gives limited number of withdrawals to customer in a year. Almost all bank offer grate rate of interest to the saving account holder to attract the people. Banks accept the deposit from the customer large sum of money for a number of year. This type of account called fixed deposit account. Bank gives higher rate of interest compare with other saving or current account. Bakes provides a certificate to the fixed deposit holder.

Other bank services

Rather than above services, bank makes some other services for their customers such as personal banking services and prepares bank balance sheet and profit and loss accounts. Bank’s important personal services are an accepting deposit and lending money. Some times account holder of the bank asks some status enquiries about their account. Bank has the responsible to answer the question. Bank also gives the safe custody services to the customer. Bank safes customer deeds, share certificates, and other valuable property in a locker. Customers pay particular amount of money for these services. The bank acts as a broker between the customer and the stock company. Company request bank to advice the customer to invest in a particular company’s shares. If the customer gives the authority to the bank to look after their accounts, the bank will maintain customer’s investment portfolio. Bank provides travelling facilities to the customers. If customer travel to foreign, bank will gives traveller cheque or foreign currency. The customer also can use credit card or book cheque in foreign supplied by the bank and also banks arrange for the travel insurance.

E – Banking

In present day a number of economic invention has been promoted due to the new technology and new economic markets growth. Business dealing is built by adapting these new inventions and are calculating for a rising measurement of the capacity of household and cross margin trade settlement. E-money consists of computerized bank tool in the formation of saved financial worth cards , computerized tokens saved in computerized remembrance . e banking is concerned as division of general allocation method in retail banking , and it,s proposed by all bigger banks. Although e banking in the formation of ATM’s and phone banking isn’t a new aspect , and a lot of banks providing this services because of growth of the internet user , and also a lot of customers use the online banking services.(Barbara 2006)

E-Commerce

E-Money

E-Finance

Other financial services and products

E-Banking

Internet Banking

Telephone Banking

Other electronic delivery channels

(Source : Introduction to Banking 2006, Barbara, Page 31)

Figure 2 Illustration of e-banking

2.2.1 Banking Risk

Main purpose of the business is a maximizing the profit including banks. The bank must arrange with inflation or recession. This risk is called as a macroeconomic risk. New competitive risk is a microeconomic risk. Normally all institutions face risk from new entrance, technology breakdown, customers change their interest, natural disaster, and political risk. In this ways bank also faces different type of risk. The banking financial systems have been changing from late 1970s forward. The bank environments were relatively distinguished by close managing; standard which greatest extent the scope of function and risk. During the 1980s , most developed countries regulatory rectifies and alteration broke down barriers in financial market and remove the high great of segmentation , which in turn , boost competition. Risk management is coming from off balance sheet activity, but some new techniques are implemented to credit risk management. This risk management consists of spotting the essential risk , determine where risk exposure should be rose or fell and determine the procedure for managing risk position in due period. Risk might be also evaluated in terms of different financial product. But the main aim of the bank as an entire will be to increase value to the bank’s impartiality by boosting the risk – adapted –earnings to share holders. In this point, a bank is like any other business, but for banks, share holders returns is going to rely upon the management of risks. Defective risk management may pressure the ‘solvency’ of a bank; insolvency is explained as a adverse net cost that is liabilities in overflow of assets. (Heffernan. 2005)

Credit risk

There are two parties take part in to a financial contract, one party is counter parties. Counter parties and other party is credit risk parties. Counter parties will give up on the periods of a contract. Credit risk is an accidental interruption in the bring back a assets or loan. Bank is a one of the business firm, so it has the responsibility to take credit risk. A quote a former chairman of the US federal reserve system "If you don’t have some bad loans you are not in the business" (Heffernan 2005). If the bank irrecoverable loan from borrower, value of the assets decline, the bank will prevent credit risk by selecting assets with exact low default risk but short return. But the banks make profit by taking risks. If the balance sheet show many low characteristic loan, the credit risk increases, but the earnings will be great. Valuable credit risk administration has been a basic part to the favourable outcome of the bank.

Liquidity Risk

The risk of inadequate liquidity for usual function necessity, that means, perform of the bank to meet its liabilities when they descent due. A scarcity of liquid assets is frequent some of the problems, because the bank cannot be rose capital in the trade of overall markets. Liquidity is an essential service gave by the banks. Customers deposit their money in a bank, and they withdraw the deposit when they want. If it is fixed deposit, they can withdraw after end of the term. Liquidity of an asset can be changed to money. This risk can be reduced by the bank by maintaining its assets liquid but its earnings will be below. Most banks are making return by taking a short plentiful - period deposits and plentiful long – periods loans.

Payment Risk

Payment risk is developed if a party pays or transfer assets before accepting its belonging assets or cash, there by revealing it to possible loss. This risk can consist credit risk if a party miss to settle the payment. The settlement risk is exactly connected to foreign exchange markets. Payment of foreign exchange transactions needs a cash move from account of one bank to that of other through the central banks of currencies included. Some other markets particularly interbank markets also face payment risk, because capacity of interbank settlement is high with specific big capacities bank payment volume far in overflow of their principal amount. Netting is one of the way of reducing payment risk, by admitting banks to create a unique net settlement to a managed counterparty, instead of a continuity of obvious settlements partly compensate by settlements in the another direction.

2.4.1 Banking regulations

Banking policies have a number of aims: getting better the safety of the banking business, by imposing investment obligations in line with banks threats; smooth the competitive playing field of the banks through locating regular benchmarks for all players: encouraging business of supervisory practises.

Regulations striking investment charge beside risk and a well-built inducement to develop risk evaluate of controls. They locate lowest values for sound practices, while the banking business works on getting better risk method of inside models for assembling their own goals in terms of best practices of risk management.

Regulations are moved by monetary values, enlarged on in subsequent chapters. However, regulations tend to beat a negotiation between moving in the direction of monetary method while being sensible adequate to be related by all players. Rules give sets of forfeits of regulation explaining the investment base as a purposing of banks exposure. Regulatory investment does not agree with modelled monetary capital. The resource of policy lays in the differences between the aims of banks of those the regulatory authorities.

The regulations face numerous dilemmas when attempting to manage risks. rules of rivalry clash since several policies limit the operations of banks. New regulations may make a conventional activity to turn approximately the related restrictions. For this cause, regulations keep away from making cruel changes in the situation that would create other suspicions. Regulations limit the span of functions of the different types of monetary organizations, thereby obstructing sprightly with free competition. The unfair competition motivated the vanishing of such regulations of the obstacles to competition was increasingly lifted. This old problem led to the deregulation of the banking business. The seventies and the eighties were the times of the first radical signals of change in the business. Those signals of change mad risks. Risk rose because of new competition, merchandise improvements, a move from commercial banking to capital markets, raised market instability of the disappearance of aged blockades. (Joel Bessis, 2002)

2.5.1 Banking on – line

Customer making transfer

Recipient receives money in its account after maximum of three days, usually sooner.

Receiving bank credits recipient’s account

Paying bank transfers funds to recipient’s bank

Recipient bank does not normally inform their customer of the funds arrival unless asked to do so

Banking automated clearing system (BACS) one of the familiar ways employers create transmits to give their employees’ wages. It is a paperless operation in that the employer does not have to issue any cheque. Everything is done by computers. A related method applies to move instructions provided by one person to give funds by transmitting into the account of another. It is likely to begin the transmit process by telephoning your bank with an order and providing them the applicable in formations. However mainly organisations will insist on a written authorization before the end of the first day of the method in order to total transfer. (Brian Cain 1997)

Training in writing

Paying bank advice

Recipient bank

of sum to be credited

to their customer account Provided to debit transferor’s

Account

(Source: Dealing With Your bank , Brian Cain 1997)

Figure 3 Online Banking Model

A principal concern whatever trade is converted over the telephone is safety. For this cause, most institutions which give this feature to individual uniqueness number (pin) or some other structure of safety symbols phrase to approve operations on the telephone. A number of banks and building cultures are initiating fully mechanized banking services. These exist to people who have a computer connect in their home and a modern to permit them to connect their computer to the external world through a telephone link. One of the largest issues concerning online banking is safety. There have been fine issued cases where computer specialists have ‘hacked’ in to evidently protected telephone lines and attained point from computers which they have then applied for their personal monetary achieve. In recent times, the techniques existing to financial institution to decide figures which has to be sent beside telephone lines has become much more complicated. Everyone who is joined to the internet may go shopping in the comfort of their individual residence, at any hour of the day or night, various shopping location on the World Wide Web offer goods for sale. The usual technique of expense is by credit card. (Brian Cain, 1997)

Supervisor of the banking system

Central banks are frequently liable for the director of banking method. This entails some form of permitting; manage above the appointment of directors of commercial banks and the laying down and examining of key financial rations in commercial bank’s balance sheet. The cause for all supervision of financial organization begins with ‘asymmetric information’ – the fast that customers of the organizations are fewer well informed & thus additional at a shortcoming about the interaction of the mediator that the intermediary is itself. The case for banking management is further built up by suspicions of the consequences. It is generally believed that bank failures are particularly grave of spoiling to the market. If they lose their means of payment, people are bound to bake moment actions to remedy the position. This will entail the rapid sale of other assets. For this reason, banks usually get pleasure from two advantages above other financial organizations. The first is that they have contact to a lender of last alternative feature offered by the central bank; the second is a method of deposit insurance, managed by the banking supervisory body. The banks must be arranged to recognize a high level of supervision in return. The need for supervision may be usually agreed, but it does not have to be done by the central bank. As noted above, supervision of the banking system is one of the actions which can possibly give to increase to disagreements of interest, if take out by a central bank which has self-governing liability for the ways of economic rule. Banking, like largely structures of financial intermediation, is increasingly a worldwide movement. Banks with headquarters in one country, for example, may manage subsidiaries in many others. This creates a difficulty for supervisors. Partly because variations between national regulations may direct to alterations in the model of banking action. Much activity in modern years has gone into the worldwide co- ordination of banking supervision. (Peter Howells , Keith Bain, 2004)

Banking competition

Usually, the domestic banking scratched in every nation was kept from foreign competitions by the above average costs that foreign banks encountered in starting branches on someone else’s turf. Moreover, the complexities of managing in foreign currencies prevent development abroad. And rules, informal as well as formal, has bordered development of banks into foreign countries.

Banking has been a vastly controlled business; originally these rules were accepted to safe depositors beside failure because the banks misjudged. Banks have been entailed to keep certain kinds of assets & have been disallowed from owning other types of assets. Bank loans to any one customer have been limited to a little part of the capital of the banks. And their loans to all customers are limited to a provide several, of their investment. Rule is created to protect the country from the collapse of the banking system, evaluates adapted to a limit bank breakdown restrained competition between banks. So regulation has helped the less competent banks to be additional gainful than they otherwise would have been a more competitive situation. Regulation constrains the expansion of the further efficient banks of their capability to raise their market share. (Robert.Z.Aliber, 2002)

Bank strategy

The improvement of overall incorporated capital market, the press on bank edges suitable to observed risks, higher costs of finance than competitors, securitization, deregulation and equipment have had a market cause on the approach of multinational bank. The main commercial banks which required to assume a international strategy in the 1970s have been strained inevitably in to the growth of the universal money market(F.Channon 1988).Securitization has guided to the quick expansion of off balance sheet directions in order to diminish prices for credit and reduce the obligation for extra, costly equity capital. Investment bank and some none other banks have assault the usual market held by the commercial bank by innovating new financial devices and by globalizing their personal running actions. Deregulation has progressed and growths in equipment have hasted communication and operation times , the blurring of habitual has guided to the appearance of the 24 hours trading in the selection of new tools in the middle of the major monetary middles and all the major global competitors. Important investment in information technology, dealing ability and communication network to make universal trading facility has therefore also become a requirement for strategic achievement for those institution decided to contribute in the new market. The impact of the savings needs wanted to make brokerage and investment banking ability and technological superiority has supposed that only those institutions of enough size to afford such obligations are promising as the overall players. For more organization the worldwide game in not feasible and they must correct to niche strategy situations. For the great organizations, therefore , the key chance of being a main competitor in the hastily growing international market looks particularly gorgeous . For the security of the world market it is to be trust that the search of overall strategies by individual corporations in such a market of speed up instability does not effect in a feasible collapse at electronic speed.

Strategic planning is an important element in the method if strategic management of the bank. It grades in the growth of the bank’s time-consuming period purposes and the model of action strategy all over the bank which direct to the attainment of the bank purposes. The plan thus illustrates the strategic way the bank will obtain by turning over particular purposes and investment priorities to specific market division in which the bank function. The bank’s plan also explains the strategies to be followed in the shape of action design guiding to modify in business variable below the restrain of management. The strategic plan include of mission, objectives , environment or market assumption , competitive force estimation, strategic adjustment in controllable issue , action plan for change implementation , and anticipated financial result.

2.2 Theory of various empirical researches

More recently Amel and Liang (1997) found attractive significance on banking entry. Amel and Liang described profitability and new entry over the 1977-1988 period for regarding 2000 rural nations and about 300 urban markets. Dick (2007) and Chohen and Mazzeo (2007b) found that the present bank in marketplace be likely to develop through new branches to assist in preventing new entrance when demand increase. (Feinberg, Robert 2009)

Comparative studies are generally relate with differentiates word of unity and distinctions or place other method, between convergences and difference (Reilly 1992). Main benefit of comparative study of banks is allowed to categorize feature that is favourable to the customer to indentify the banks to invest. Even though Maurice et al (1982) provide a new viewpoint for following comparative studies for the banks. Bresnaham (1982) and Lau (1982) , concentrated the market competitiveness of commercial banks was issued. Panzer and Rosse (1987) expanded to guess degree of market competitiveness under the hypothesis that marginal income identical to the marginal price. This indicate the meaning of the organisation’s profit equal zero under long run perfect competitions. In this ways, Nathan and Neave (1989) analysed similar systems estimate the degree of banking competition in Canada, when Shaffer and Disalvo (1994) concerned the methodology for regional banks in the USA. Lee and Kim(1995) and lee(2003) evaluated Canada and USA banks , finalized that Korean commercial banks are not big. Panzar and Rosse(1987) , empirically argued that the competition of banks grow due to the monetary deregulation development (Minhwam 2008). Gdbraith (1971) had explained an exceptional wording about Canadian banks.Gdbraith express banking account of all Canadian banks focused as financial intermediaries. Researcher analyse how does bank get money to continue their business activity and what does bank do using this money. And Gdbraith also concentrated bank liabilities, loans, money lending policy, and safety for the loan. (Gdbraith 1971). Shirley and Walsh (2003) were a big empirical literature in banking sector, analysis state owned and private banks. The state owned banks have less cost to correct market failure that consist of the natural monopolies, decrease the revenue inequality and carry out a host of another goals. The state owned banks can be defined as an effective way to increase fund for project with high social revenue but minimum private revenue or to give finance to inferior borrowers that would be ignored by low well informed or motivational private banks. (Clarke 2004)

2.2.1 Comparing a efficiency of various banks

A lot of work relates with the banks and financial institutions. Ariff(1988) and Zaher and Hassan (2001) concentrated on the banking empirical view and efficiency. Metwally(1991) examined the main characteristic of Islamic banking and conventional banks in meaning of liquidity , leverage, credit risk, profitability and efficiency using statistical method for 30 banks for the 3 years period. The researcher discovered that the no any considerable different profitability and efficiency between the banks. Samad (2004) examined the performance of Islamic banks in Bahrain between the years 1992-2001 using important banking ratios and exposed that there is a small dissimilar among profitability and liquidity. Further suggested that the Islamic bank performance is in line with that of conventional banks. Roselyn ad Barkar (2003) evaluated the performance for the banks and concluded that the banking activity depend on the size of the market place. Ahamad and Hassan (2007) described the major functional distinction among Islamic and conventional banks. Islamic banks have personal interbank financial market and also have secondary monetary market. Islamic banking are functioning according to the banking law, the researcher explained that the this bank has power to control alongside Islamic law.

Hurst et al (1999) made comparative study for the banks Euro land and US. The researcher identified Euro land banks make a comparatively minimum income and have maximum cost because of cost are not well handled in most European countries.

In study of the banking sectors Havrylchyk (2006), suggested the examination of the competence of foreign banks and local banks were different from some banking related variable such as capitalisations, non performing loan ratio, and increase in assets. Important study of this research, in the meaning of deciding of the efficiency of banks is considerably negative correlation of nonperforming loan ratio and total loan to assets ratio. But the foreign banks generally depend on their own country, so the head office of that particular bank explains the efficiency ratio of the bank. The study of the Hungarian banking sector, Hasan and Matron (2000) explained the efficiency ratio by using number of variable through correlation and regression analysis. This regression analysis was shown that the dimension and ownership of the foreign banks directly correlated with the banking efficiency. Kasman (2005) studied attractive research for the Poland and Czech countries. Kasman suggested that the providing loan aggressiveness of a bank and capital ratio had a positively correlated with banking performances and operating income to total assets ratios were negative impact on banking performance. Chantapong (2006) studied the overseas and local banking performance in Thailand. The researcher found that the ownership of the bank and economy of the country were influenced efficiency of the banks.

David Rogers (1999) evaluate the differences and comparison of American banking and British banking. There was various differences and comparison between these two banks. Some was identified in purpose of the various ethnicities and organisational market, and role of formation of the countries. These both countries have strong financial system. American and British banks by differentiate for the many branch do not have non monetary business, and there are powerful control to the personal supply, familiar in UK and governmental in US. Further David suggested that the US and UK banking have similar characteristics like other countries banks in the World. These two countries banks have experienced Worldwide tendency from segmentation in monetary in financial experience. Simultaneously in changing to rise competition in wholesale and retail banking banks in two countries have become rising internationally, have expanded in their product and customer base. David (1999) identified the different in British and American banking activity in the case of economic conditions, universal banking, recruitment policy, marketing method, banking failure, and investment banking. The British banks have much more economic attention than American banks. UK has traditionally been especially lightly controlled in compare with American bank, this bank has more regulatory model in the globally. In UK, where no limited for opining branch, no interest rate limit, no deposit insurance, and no lower capital requirement.

2.2.3 The role and relationship between the banks

Current literature on banking has underlined the role banks participate in falling business deal rate and acting as assigned observes for financiers, and offering liquidity. It regulations that differentiate banks from other financial organization, and thus build bank rule and management essential. Bank decreases operating cost in the services they offer. Bank services can be analysed as converting exact type of assets in to others. Such revolution has two characteristics. First bank transform deposit with little or no constraint on the least quantity and of short period maturity, such as demand deposits, into loans with a longer maturity and in a big sum, and with credit risk. These facilities are too expensive for a lot of person financial players to make for themselves. The second task of the bank lies in their capability to bridge information asymmetries in the credit market by providing delegated monitoring. There is a sizable literature on how banks may develop effectiveness by diminishing agency costs. While handed over monitoring concern bank asset, the third task of the bank, liquidity stipulation, is communicated to bank liabilities. In the famed Diamond and Dybvig (1983 and 2000) model, banks can be believed as a pool of liquidity that offers house hold with insurance once more.

A grouping of above three tasks differentiates from other financial organizations. And recommend that bank loans are exclusive and exceptional. There are various facts bearing the uniqueness of bank loans. James (1987) discovers that there is an optimistic stock price response to a borrower’s attainment of bank loans but a negative response to debt lay personally with insurance companies. Topical literature further inspects the causes of such uniqueness by seeming at the connection between the bank health and organisational accomplishment. ( e.g Solvin , Sushka , and Poloncheck , 1993 ,: Gibson , 1995: Kang and Stulz 2000: Bae , Kang and Lim 2002: Peek and Rosengren, 2000: Ongena , smith , and Michalsen , 2003: and Gan 2003B) . The majority of these study discover facts that banking correlation are expensive insofar as negative shocks to bank health are connected with lesser stock market evaluation and or worse fixed investment.

The worth of the strong banking relationship also implies a credit channel as a transmission device of monitory rule. Bernanke and Blinder , Kashyap , Stein, and Wilcox (1993) and Hoshi , Sharfstein (1993) and Singleton (1993) present facts that bank file a increase in commercial paper issuance. A straighter test of bank altitude loan data, that additional liquid banks are less probable to decrease lending monetary contractions than less liquid banks. (E. Klein2005)