Pressure on germany to cut taxes and ease regulations

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Pressure on Germany to cut taxes and ease regulations. Germany does not like this, they can try to force Luxembourg and the rest of the EU to harmonize tax rate Desirable in that if Germany did deregulate, they may find ways to be more efficient and decrease their costs and rate But, banks may not return to Germany- like Eurodollar market F. Read “Wal-Mart and financial services: Supercenter banking” (item 7.6) and answer the following questions: i. If Wal-Mart does enter retail banking, how will this affect existing banks? What sort of banks will be most affected? Banks most affected are the small commercial banks who tend to have lower income customers. Walmart could drive some small banks out of business or they could make some partnership with small banks It will increase competition, if Walmart can do the same business (it is) but have a lower cost they could make the rates competitive and push small banks out of the business. ii. How will existing banks respond? Different sorts of banks might respond differently. First reaction would be political- small banks would aim for more regulation- Walmart is trying to avoid a lot of regulation by hiding behind its retail label (to be exempt from the CRA) so small banks can lobby to treat them as a bank If this doesn’t work small banks would try to compete and/or do things Walmart can’t OR they would try to form a a partnership with Walmart. iii. What will be the impact on consumers? What sort of consumers will be most affected? Competition lowers prices for consumers, helping the low-income consumers (especially those without bank accounts) Low income consumers will be most affected This development should spur competition leading to lower rates for consumers. iv. How does the potential entry of Wal-Mart into banking affect the arguments over the effects of increasing banking concentration? Argument against consolidation- lack of competition, market power, small number of big banks will have too much control
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Cons- few organizations, few people decide how money is lent -> much higher risk for mismanagement Regulators oppose the movement, denied Walmart from purchasing a thrift because they were worried about danger of combining retail and financial services Pros- large banks are more stable because they are diversified Consolidation leads to survival of the fittest (more efficient banks take over less efficient ones, even banks not involved in consolidation improve efficiency because of competitive pressure v. What should be the regulatory response? What is likely to be the regulatory response? If there is a discrepancy, why? The regulatory response should be nothing, the banks and Walmart should compete with one another to create efficiency Likely that people will lobby against Walmart becoming a bank and Walmart will not be allowed to enter banking
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Chapter 7: The History of the Banking Industry Three Key factors in the evolution of the banking industry-
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