The competition in banking industry, like many others, is changing fundamentally. Banks are susceptible to systemic and non-systemic banking crisis. The evolution of a banking crisis may be attributed to many factors-distress, panic and apprehensions being one major reason. The phenomenon of panic withdrawals has deep roots. However, if the impact of distress or panic due to rumor is only on selected banks, then this may be an insinuation towards a more serious problem. The focus in such events shifts from a healthy competition to that one of stooping to contriving in vitiating the reputation and image of the competitors. But the banks must gear up to tackle such prospective situations. Solutions fortunately can be devised for combating such a crisis. Credibility is the Achilles' heel of a banking organization-especially apropos the vacillations of a trenchant competitive sector. Unless, a comprehensive set of measures- both preemptory and peremptory- are undertaken with special advertence to the tenets of crisis management, fiascos cannot be eschewed. Here, the arsenal of logistics, communication and technology have a critical and salutary role so that combating panic withdrawals is more of a duck soup and not an asphyxiating bolt from blue.
The economic development of a country depends inter alia, on the growth of the financial system. The larger the proportion of financial assets to real assets, the greater the scope for economic growth in the long run. For growth to take place, investment is necessary, which has its provenance in the financial system. Besides, as a scarce factor of production in the developing countries, finance has a crucial role to play in this ilk of economies. The growth objective of the financial system is to achieve the structure and rate of growth of various financial assets and liabilities in consonance with the optimal characteristics of real capital stock. The more efficient composition of real wealth is obtained through the promotion of such financial assets, which provide incentives to savers and the public to hold a growing part of their wealth in financial form. Increasing rate of savings correlates with the increase in the proportion of savings held in the form of financial assets relative to tangible assets (Patrick, 1966).
It would be pertinent to note here that economic growth is a function of the level of investment, capital-output ratio and the state of technology. Given the state of technology and capital output ratio in each activity of productive process, the level of investment determines the increase in output of goods and services and incomes in the economy.
There is another aspect of the financial system which is germane to growth, namely, the absorption of liquidity and its use for productive purposes. A well developed financial system with adequate institutions would not only promote savings but also encourage these savings into physical assets such as gold, silver, real estate and commodities. The sensitive commodities of a speculative nature in turn would feed inflation while the same flowing into financial assets (non-inflationary in nature) would underpin growth in the economy and reduce inflationary pressures. In less developed countries with inadequate and underdeveloped financial systems, where, increasing government deficits and growing liquidity is not absorbed in the financial system, it leads to the well-known phenomenon of money chasing goods and to investment in unproductive physical goods and assets, feeding further inflation.
THE COMPETITION IN THE BANKING SYSTEM
The competition in banking industry, like many others, is changing fundamentally. Interest rates in some regions of the world are approaching 40-year lows and equity markets are far more unpredictable than in the bubble years of the 1990s.
A study made by Boston Consulting Group discusses the major dynamics for organizations that hope to control their own destiny in the years ahead. …