Are banks losing their traditional role Essay Example | Topics and Well Written Essays - 2000 words

Are banks losing their traditional role - Essay Example However, over the last few years, banking has changed radically and is expected to continue changing in a foreseeable future. The purpose of this essay is to discuss the principal functions of banks, the emerging challenges and the impact of market and global dynamism on the future of banks and banking institutions. The types of institutions performing banking business have been changing. Banks seem to be foregoing their traditional role. In many countries, the income coming off-balance sheet exceeds the income coming from the traditional intermediary roles in finances. Banks have become financial services organizations. The actual role of banks is increasingly becoming ambiguous since it is no longer clear what banks are or the details of the businesses they conduct. The actual definition of a bank seems to be missing. This has caused banks to be under intensive regulations compared to many financial institutions. Banks the world over are experiencing formidable challenges. Banking institutions have been losing their past monopolies and perceived comparative advantages. These attributes have underpinned the dominant positions taken by the banks in the financial systems. Banks are increasingly facing stiff competition from potential or actual suppliers of banking services (Fredrick 2005). Some of these include non-financial institutions of banking, capital markets, non-banking institutions of finances and money markets. The entry of electronic banking has caused the retail banking markets to become relatively closed (Skinner 2007). This has made it difficult for the foreign banks to enter into such markets. In other cases, the corporate clients are considering having in-house banks. Under this initiative, the banking operations are conducted through internalized banking operations. This is forcing banks to shed staff and closed down branches. The entry of new technologies and alternative means of banking services delivery is pushing banks to the reconsider rest ructuring to meet the demands of the dynamic nature of the market (Skinner 2007). Banks have been squeezed by inroads affecting their conventional businesses and ever growing competition, banks are swiftly expanding to unit trusts, insurance and life insurance sectors (King 2010). As these trends emerge, banking institutions have been coerced to conduct major structural changes in their mode of operations. Major structural changes have been emerging in the financial systems. There has been a push to increase the strength of institutions that deal with saving and investment businesses (Gap 2003). These institutions have a growing role in the modern financial systems. At the same time, the financial markets have been experiencing extreme dynamism. The world is having complex financial instruments and globalised financial markets. The role of the managers of institutional funds has been on the rise in the financial markets (Skinner 2007). The traditional distinctions between financial institutions have been gradually eroded. New financial suppliers have been entering the markets at an increasing rate. There seems to be a declining share of bank loans in the corporate sector borrowing (Skinner 2007). The money markets mutual funds have experienced tremendous growth. The business of the corporate lending has been steadily declining which the financial mar