The global financial banking system as we know it was forged by deregulation underpinned by a belief in free markets. That approach failed (Peter 2009). On 7th April 2007, Northern Rock and Bradford & Bingley had been dismissed from the FTSE 100. At the same time, five of the FTSE 100 banks, HBOS, Lloyds TSB, Northern Rock and RBS, are now occupied by the public in a large extent. In November 2009, the U.K. government declared that another £33.5 billion would be injected into RBS, which costs around £60 per tax payer to rescue the troubled bank (BBC NEWS, 2009). In America, one hundred and nineteen banks have been shut down in 2009. In order to consolidate the fragile banking system, $700 billion federal bailout fund has been reserved by the U.S. government (AP / IEVA M. AUGSTUMS and MARCY GORDON 2009).
What have happened to our fascinating and extraordinary banking system? Why does everyone still suffer from financial crisis with this ravishing banking system? The equivalent questions have been asked by regulators, premiers, bankers and each of us day-to-day. It is like installing seatbelts, airbags and anti-lock brakes on cars that have just been involved in a head-on collision. If they succeed, driving should become safer. But some motorists may forsake the highway for slower country lanes. The task now is to prove the banking engine can be set running again with better brakes and steering (Peter 2009).
Therefore, to what extent should bank regulations1 exert their power to reconsolidate the fragile banking system but not slowing down the economic development? How do market structures2 and institutions3 giving impact on the cost of intermediation4?
In this paper, the theoretical and empirical literature would be critically reviewed. First of all, the theoretical literature would be examined through investigating the relationship between three aspects (the impact of bank regulations, market structure and institutions) and the cost of financial intermediation.
In the next section, the empirical literature would be carefully analyzed through the same horizons. At the end, a conclusion would be given with insights for the future development of the banking system.
Source: ChinaStones - http://china-stones.info/free-essays/accounting/global-financial-banking-system.php