1 ) Introduction Inside our daily life, we could receive financial service from banks and branches in whose headquarters may well from several city, region or nation. This is because banking consolidation features improved banking expansion before decades. It is a fact that many banks regard consolidation as a method for their growth and development in fresh market. Debt consolidation usually incorporate mergers and acquisitions. The previous one means two 3rd party companies combine as a new one, the latter one means a financial institution has a controlling interest in additional firms nonetheless they still continue to be independently.
(Heffernan, 2005 ) The following area of the article will be divided in third parts. The first part can focus the reason why, trends and effects of debt consolidation in financial industry.
The other part is principally about the rewards and disadvantages of consolidations to get the market and contemporary society. The last part is evaluation about challenges consolidation provide the government bodies. 2 . Debt consolidation in Banking Sector 2 . 1 . Causes of Consolidation in the Financial Sector There are lots of problems concerning about banking loan consolidation.
The basic one is the motivation. So why banks want to mergers and acquisitions? DeYoung, Evanoff and Molyneux think the principal reason for financial consolidation is financial and technological innovations in the marketplace ( DeYoung, Evanoff and Molyneux, 2009). This is concerned to be a significant factor since after a say of new technology, the composition in the industry changes since all banks make changes to in shape to enhancements.
Thus many small financial institutions struggle to endure or get bankruptcy following innovations, finally they plan to consolidation if they are to get better development. To the larger financial institutions, they are better in competition, they are happy to consolidate with those small banks to get more competitive in the market. Yet , Researches show that technology spread to small banking companies rapidly due to third-party technology vendors and decreasing costing of technology delivery lately. (Frame and White, 2004; cited in DeYoung, 2007 ). Therefore this cannot be regard because an significant reason today. Some analysts argue that the better justification for financial consolidation may be the relationship paradigm between industry power and profitability (market-power theory). (Shepherd, 1982 and Berger, 95. Cited in Santillán-Salgado, 2006 ).
They will address that in financial industry, ” firms with large market shares can reach the minimum financial scale of operations to formulate a differentiated base of goods which can be priced at a premium to acquire extraordinary profits(efficiency-structure hypothesis). ( Santillán-Salgado, 2005, p85). Due to this explanation, in order to make more income, banks desire to increase market shares. Mergers and purchases are the most critical way for company restructuring and enlarge corporate and business scale in new marketplaces.
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