Abstract
The main function of banking is to contribute to economic growth by providing sectors outside of the finance section with financing that they need and fulfilling an intermediary role between lenders and borrowers. This intermediary function increases the importance of the banking sector compared to other sectors of the economy. Market structures are very significant in terms of firms' market entry and exit and stay on the market. Markets are subject to four different distinction as perfect competition, monopoly, oligopoly, and monopolistic competition markets. The objective in the market is to ensure efficiency in production and sales by pulling down the costs of production through competition. The factors determining the market structure are the numbers of firms in the sector, the degree of restriction on the entry and exit of firms in the industry, the number of those requesting products and homogeneity degree of product produced The banking sector, unlike other sectors, has unique characteristics. Competition policies which are valid in other sectors are not appropriate for the banking industry. Market openness for instability and market failures change the structure of competition. Asymmetric information, product replacement costs and externalities create barriers to entry which, allows banks to be in a dominant position in their markets. This study examines the main indicators showing concentration, effectiveness, depth, and intermediation functions of Turkish banking sector and investigates in which market structure the sector operates. In this regard, it has made policy recommendations over the results obtained.
TopLiterature Review
Some of the outstanding studies in the literature review on the subject are briefly mentioned below.
Mishkin (2009) studied how globalization contributes to financial development and economic growth by strengthening the institutional structure in an economy. He has determined that in a country implementing a financial liberalization policy, productive investment projects can be supported by lower-cost loans; and with the increase in free foreign trade, the performance and quality of the real sector can be increased. He stated that financial development shall accelerate in a market where the real sector is getting stronger, and institutions shall have to implement reforms by keeping up with this development movement.
Beck, Kunt and Levine (2003) analyzed the concentration in the banking sector and found out that while the three largest banks in the US hold only 19% of the sector, this rate is higher in Finland, Norway, New Zealand and South Africa.
In their study, Prasad and Ghosh (2005) tested the idea that competition in the Indian banking sector has been on the rise after the financial sector reforms in 1992 by using annual commercial bank data from 1996-2004; and they concluded that the Indian banking sector operates within the monopolistic competition market structure.
Key Terms in this Chapter
Oligopoly Market: It can be defined as the market structure where there is a large number of buyers while there are a few sellers.
Globalization: It is an international integration process resulting from the exchange of products, ideas, cultures, and worldviews.
Competition: It is the whole of the competition activities which are carried out against competitors with the aim of providing superiority.
2008 Global Crisis: It is the economic progress that emerged in the last months of 2008 and negatively affected many countries.
Market: The environment where purchase and sale decisions that allow buyers and sellers to meet is called market.
Concentration: It is that a large percentage of the total of economic resources and activities are controlled or owned by a small percentage or a few of the units that own or control this total.
Bank: A bank is a financial institution that accepts deposits and recurring accounts from the people and creates Demand Deposit.