Industrial Structure of Banking Essay Example | Topics and Well Written Essays - 1750 words

Industrial Structure of Banking - Essay Example Fourth, the relationships between the banks and the financial markets have also proven important determinants of the financial stability of the economy. Financial markets refer to the entity where stocks and other securities are traded(Anon., 2010). Banks are custodians of the investors’ funds. The financial markets generate prices whenever securities are bought and/or sold. When these banks want to make loans to the investors, they value these financial assets whereby the valuation and pricing of these financial assets are the main determinants of the financial stability of the economy. When prices are high, the banks are willing to lend more in the economy and this leads to the financial crisis in the economy since there is more money chasing few assets in the economy. On the other hand, when the prices are determined to be low in the financial markets, there will be a little amount borrowed hence high financial stability in the economy. Therefore, this links the relationshi p between the banks and the behavior of securities in the financial markets and how the relationship affects the financial stability. The other market structure is a cross-border listing, which refers to the process where banks stocks are listed in the securities market of other countries where it was not incorporated. These banks which are listed in other countries enhance the capital inflow to the economy. Too much inflow of these funds into the economy can lead to financial instability if not well monitored.