Essays on Banking Regulation and Practice Coursework

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The paper "Banking Regulation and Practice" is a great example of a finance and accounting coursework.   Concentration Ratio: This is the approach used to compute the concentration of the market divide controlled by some traders in a market. The ratio shows the comparative magnitude of particular firms in an industry. Low concentration ratio translates to greater competition amongst the firms in that industry (Delis & Tsionas 2009, p. 1855). Herfindahl Index: It is an additional measure of concentration in an industry. The Herfindahl index is basically the sum of the squares of the market shares held by each one firm in the industry.

The measure is intended to gauge industry concentration and by implication the extent of market control. The index varies from 0, indicative of perfect competition, to 10,000, indicative of total  monopoly. However, as a general rule, < 0.1 represents low concentration, > 0.1 but < 0.18 denotes moderate concentration as > 0.18 implies high concentration (Delis & Tsionas 2009, p. 1857). Efficiencies Technical Efficiency: Technical efficiency narrates the quantity of output that is obtainable from a specified input level. It is the efficiency with which a specified combination of inputs is applied to create a product.

A firm is regarded as technically efficient if it produces the optimum output from a minimum amount of inputs or is utilizing minimum inputs to manufacture a specified output level. Essentially, the phrase means producing goods at the least feasible opportunity cost (Delis & Tsionas 2009, p. 1876; Berger & Humphrey 1997, p. 212). Allocative Efficiency: Allocative efficiency denotes an optimal and efficient allocation of resources. This entails taking into account consumer preferences. Allocative efficiency refers to a production level where the Marginal Cost (MC) of producing equals the Price (P) since the price that consumers are prepared to pay is correspondent to the marginal utility they would acquire (Berger & Humphrey 1997, p. 219).   Economic Efficiency: Economic efficiency  is attained at the least achievable cost of producing a specified amount of output.

It denotes the procedure by which resources are capitalized on to produce more production value than they utilize; it is habitually based on value. Economic efficiency is a combination of technical efficiency and allocative efficiency (Berger & Humphrey 1997, p. 221). Basic Structure-Conduct-Performance (S-C-P) Model The structure-conduct-performance (SCP) outlines indicate that the structure of an industry is established on the forces of demand and supply in that industry.

According to Delis & Tsionas (2009, p. 1874), the competition resulting from this industry structure affects the conduct of companies and in the end, dictates the performance of the industry. The model has three elements; market structure, market conduct and market performance. Market structure institutes the general setting in which all firms manoeuvre. Fundamental market structure features comprise the number of live rivals, barriers to exit and entry, nature of the product, and the existence of any unevenness of information among buyers and sellers.

The market structure usually varies from one industry to another due to variances in fundamental surroundings, together with the basic hi-tech base, the regulatory setting, demand, and economies of scale (Berger & Humphrey 1997, p. 235). Market conduct is founded on the expectedness of definite pricing along with productivity choices cropping up from market power or its nonexistence. Whether a firm settles on its policies autonomously or in union with other firms in the market, the outcome is a crucial impact on the industry’ s conduct.

Finally, market performance dictates conduct and is replicated by the level of productive plus allocative efficiencies, fairness, and hi-tech advancement (Berger & Humphrey 1997, p. 237).

References

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Delis and Tsionas 2009, “The joint estimation of bank-level market power and efficiency”, Journal of Banking and Finance, 33, 1842-1850

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