Literature Review of Banking Studies

Abstract

Banks are important in mobilizing and allocating savings in an economy and can solve important moral hazard and adverse selection problems by monitoring and screening borrowers and depositors. Besides, banks are important in directing funds where they are most needed in an efficient manner and have direct implications on capital allocation, industrial expansion, and economic growth (Berger, Demirguc-Kunt, and Haubrich 2003; Levine 1997). Banks also play an important role in diminishing informational asymmetries and risks in the financial system. Hence, the study of the banking industry and its impact on the economy is of the utmost importance. The effects of concentration and competition on bank performance are pertinent since they have important policy implications. A recent global trend of consolidation in the banking sector has intensified, generating important debates on its effects on the profitability of banks, consumer costs, the efficiency in allocating resources in an economy, and on overall financial stability.