Financial Intermediaries Swot Analysis

Much of the subject matter of economics is economic development and economic growth per se. The role of financial structures in economic development has become of interest and lot of literature do find positive correlation between the two.

Linkages and approaches

It is common contention that financial strcutures may influence savings rates, technological improvesments and hence influence economic growth. According to Keynes it is never a problem of finance but rather of finance, thus financial intermediaries play an important role in mobilising funds. In the wake of talks of financial liberalisation, the role of financial structure and its role in economic development take centre stage. Given the recent events of crisis caused by the

An important point to note in the functional approach is that it keeps in account that same financial service can be provided by different intermediaries and the same intermediaries can provide different services according to the presence of information and transaction costs in varying degrees in different economies. According, different set of institutions (e.g. banks), market (e.g. stock market, futures market) or financial instrument (deb contracts, equities, options contract etc.) could come up.

It stresses the importance on the functions provided by the financial sector and not on the type of financial structure that is whether it is a bank based financial system or market based financial system. King and Levine found that initial financial development is a good indicator of the long run economic growth, accumulation and technology. The relationship is not a coincidence but is in fact causal. A World Bank study is consistent with the “financial services” view and finds a significant and positive role of financial development on long run economic growth in cross country as well as industry level and firm level while the type of financial structure had no significant

Many scholars have tried to compare the banking systems of Germany (Universal banks) and UK and tried to show that the former is more superior to the later. German banking epitomises bank-based financial system and UK is market based financial system.

The reason given for the superiority is that the former due to close relationship with the firms are more willing to offer long term capital. They have closer relations with the firms and even acts as an adviser. German banks usually have representation of the in the supervisory board of the firms. More often than not, since these banks are the sole supplier of loans to these firms they are in a position to know the solvency conditions of the firms. Because it gathers knowledge about the firms and can monitor the activities of the firms they can exert managerial control. They even act as