Estimation of Production Function of Public Sector Banks

The banking industry has undergone major upheaval in recent years, largely due to the lingering recessionary environment and increased regulatory environment. Many banks have failed in the face of such tough environmental conditions. These conditions

There are various categories of banking; these include retail banking, directly dealing with small businesses and persons. Commercial and Corporate banking which offers services to medium and large businesses (Koch & MacDonald 2010). Private banking, deals with individuals, offering them one on one service. The last category is investment banking. These help clients to raise capital and often invest in financial markets. Most global banking institutions provide all these services combined. With all these institutions in existence within the same localities and offering similar services, there is a need to regulate the industry so as to protect the consumer and provide fair working environment for all banks (Du & Girma, 2011).

The World banking system has witnessed some major transformation. Changes in regulations and laws, advances in information and banking technologies, acceptance of the market economy by less open economies and the adaptation and integration of international financial markets which offered opportunities and challenges

The industry that I have chosen to analyze for this paper in the banking industry. The companies which I have selected to analyze are Bank of America & Southeastern Bank. Bank of America will represent as the example for the company who has acquired and merged with other banks, and Fresno Southeastern Bank will act as the example for the bank who has never merged with a larger bank in any form or has been acquired. Both these banks offer similar products to their customers, for checking and savings accounts to home and car loans. They both offer investment products as well. Bank of America has a lot more products on a larger scale due to the size of their company, and the mergers they have made over their history. They operate worldwide

Extensive research has determined that the banking industry is in an unstable state. The industry’s profits have

The banking industry is highly competitive. The financial services industry has beenaround for hundreds of years and just about everyone who needs banking servicesalready has them. Because of this, banks must attempt to lure clients away fromcompetitor banks. They do this by offering lower financing, preferred rates andinvestment services. The banking sector is in a race to see who can offer both the

Banking industry is highly competitive as there is high exit barrier. Moreover, competitors are large and quite equally balanced. Additionally, as banking industry has emerged for hundred years, just about everyone who needs banking services already has them.

The banking industry has transformed in numerous ways through the ages. Financial institutions now offer a broader assortment of products and services than ever before. The banking industry’s principal purpose remains the same. Financial institutions put the public 's excess monies (deposits and investments) to work by loaning them to individuals to purchase dwellings and automobiles, to open and grow businesses, college funds for families with children, and for countless other reasons. Banks are essential to the wellbeing of our country 's economy. For millions of people residing in the United States, financial institutions are the primary election for saving, borrowing, and investing funds.

The move also provided a stiff competition between the Non-banking financial Institutions and the traditional banks where they were offering services which were traditionally limited to the traditional banks only. The rules that governed the banks were lifted and banks had the freedom to venture into other financial services which were not their core business. The rapid transformation of the global financial system resulted into a hive of financial investments due to the belief that the financial system was capable of controlling itself without being closely monitored.

In the past and in many jurisdictions, the banking industry has been exempted from the full rigours of competition policy, owing to concerns that competition in banking might be harmful to the stability of the financial system. Critically evaluate the rationale for such an exemption, and examine developments in thinking concerning the application of competition policy to financial services following the financial crisis of the late-2000s.

Economists, bankers, congressmen, and part of the industry have been thinking that it is the time to make some adjustments. Despite that fact, some of those people believe that big banks, without any break up or reform, are more stable and safer than smaller and less complex banks. Moreover, those defenders have stated that the regulatory reforms

There has been significant increase in the profitability of banks from 2004 to 2008, this was due to increase in net margins and decrease in non-performing loans. However, the growth is not very sustainable as every financial system is interconnected with the economic system. If the economy slows down then the banking industry will be hugely affected. Capitals of banks have fallen down and there is a forecast of average earnings of 14% per annum which is less than previous the levels. (Davila)

Securitisation will be discussed later on. New Technology New technology has reduced barriers to entry. Originally the banking sector was based on branch networks; in order to operate overseas, a bank required a branch in that country. Now, thanks to new technology, in particular the internet, the physical presence of a bank is not as important and branches are no longer a requirement to operating overseas as physical proximity does not determine where money can be raised. For example electronic trading technology has allowed the creation of companies such as E*Trade and is providing new distribution channels and shifting the balance of power to the consumer. Thus technology has changed the way in which money is lent and banks have had to become more innovative both in the way in which their financial services are delivered and the services they offer. Direct banking (telephone and internet banking) is becoming comparatively more important and the branch network, which used to be a major competitive advantage because it created a barrier to entry is now becoming one of banks’ most expensive problems (Llewellyn 2

Private banking industry has changed in a very basic way, driven by many key factors such as: free competition systems, modern developments in information technology (in particular, developments of the internet), and changing demographics. Private banks now operate in an environment shaped by increasing and shifting regulations, and in markets influenced by the uncontrolled situations of the world economy and geopolitical issues.

position of these commercial banks. The ratio of total deposit to total Funding, liquid assets to demand liabilities