Hoping for a mediation between different approaches

[snapper123]

Humphrey (1985) made a useful distinction between the ‘production’ approach and the ‘intermediation’ approach concerning banking behavior. The production approach views a bank as a donor of real estate loans, installment loans, user capital, labor, materials and so on. In this case, the number of accounts and outstanding loans provide the appropriate measures for bank output. The total costs include all operating costs incurred in the production of the outputs.

The intermediation approach treats banks as a collector of funds which are then ‘intermediated’ into loans and other assets. The dollar volume of deposit accounts and loans is the appropriate measure of bank output under this treatment. However, the operating costs plus the interest costs provide the appropriate measure of total cost. The choice of a particular approach depends upon what issues a customer is attempting to resolve. Banks like LoanMax of the rod aycox fame offer a varied choice to their customers.

The production approach is appropriate for studying and analyzing the cost efficiency of banks since it concerns just the operating costs of banking. The intermediation approach is concerned with the overall costs of banking and is appropriate for addressing questions concerning the economic viability of banks. To remain viable, every bank must make profits through sales of various financial products and services.

Studies have made a modest attempt to assess empirically the relative performance of each bank in the context of three variables viz.
• Profit
• earnings and
• expenses
In a recent study, the Herfindahl index has been computed to measure the inequality in the sharing of profits, net profits, earnings and expenses by each type of bank. The suggestions being made is that each scheduled commercial bank should take up some exercise to evaluate the relative performance of each office of the particular bank in the profit planning process.

[Denny Crane!]

I'm guessing this is copyright infringement and a cut and paste job as........

You do realise that you didn't actually start a discussion. So please don't plagarise it will get you warned, it is either that or just badly written.

Is this supposed to spur some kind of commentary about the business strategies of the banks? They already do what the last sentence implies, each divisiions profitability is monitored differently like BARCAP is a completely seperate division of barclays and the only times the profitability is combined is when the companies share price is calculated.

Or were you perhaps referring to the amount of capitalisation each division of the bank should retain in order to secure its position and liquidity against toxic assets?

[War lord]

This thread makes my brain hurt.