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Finance Assignment Question
Using appropriate analytical tools, evaluate the influences on banks’ strategic positioning. Illustrate your answer by reference to real world examples, including case studies.
Finance Assignment Solution
Introduction: brief overview of banking theory and role of strategic thinking in banking
Today, when the world is becoming a global village, the emergence of global banking business is a norm and every bank is trying to foray into other countries to become a multinational or transnational bank. In such scenario, when economic liberalization is at its peak and banking policy is same at the global level, the competitiveness between banks becomes high as every bank follows more or less same structure. The main objective of this assignment is to discuss and analyze a bank’s strategic positioning in retail and commercial Banking arena under the light of various structural changes taking place and the strategic drivers responsible for those changes. This essay explains various factors which banks need to focus in order to sustain in changing the financial environment and be profitable. This includes the business models, pricing, and product coverage, regulations and risk management.
Theory of financial intermediation: Do we really need banks?
In the Arrow-Debreu world, when markets have no friction the allocation of resources is done through the interaction of households and firms in the market and intermediaries has no role to play, i.e. allocation of resources is Pareto optimal. However, it is widely acknowledged that banking as an intermediary is a known fact and has a long history. Banks take deposits and pay interest on it while they lend at the higher rates to finance the projects and hence the difference of interest rate is the income of banks. Various theoretical models of intermediation are based on the premise of resource allocation in perfect market and analyses when a transaction cost and information asymmetry issue arises. Later, several studies provide models for such issues and the development of the theory of banking took place. However, the important point here is to consider that, financial systems in countries have changed dramatically and so the banking too. The reason for changes may vary from financial innovation to advancement in the technology or introduction of the newer capital market with new financial products. Considering those changes banks have formulated their strategy so as to capture more market share and client base to generate more profit. Intermediation takes place either through direct intermediation (bank based and market base mechanism) or investment banking and securitised intermediation.
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