DEBATE: Should we have a smaller financial services sector?

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  priyom Mishra 4 March 2025 6:00PM

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  yes,in my thinking small finace service proveder are neccesory for us in now days,becouse in this days for financial inflation its is neccesory to be a nbfc type of finace providers.becouse its helps us to inrich our finacial requerment for our small business startup. In village its is used in the animal husbedary or animal rearing are fuillfill the financial requerment by the help of this small finance providers

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  Richard Schiller 28 May 2013 3:26PM

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  This is how I see the question posed by the BBC documentaries. It seems to be one that the programs did not answer and in fact did not properly frame. So I could be just too naive but anyway, this is what I thought...
  
  To get a significant business going most of us would need to borrow money from a bank. We may borrow to buy parts, goods or essentials. We may also use the bank to exchange our money into other currencies when buying or selling abroad. Without these kinds of services being available business is very much harder to do.
  
  On the other hand, the bank may offer us products that insure against exchange rates moving or interest rates changing. Additional financial products that aim, or at least claim, to take some of the uncertainty out of our future.
  
  In the end our £1 of real money may have been part of two, three or many more financial service products. Each of those products will need to take a part of that pound. The more products we use then the more parts will be required by the bank for its costs and then its profit.
  
  The businesses we buy from and sell to will need the same kind of basic financial services. They may then choose some of the additional services too. Again more small parts of that £1 will need to go to the operation and profitability of the bank. Then eventually the result of all those businesses working together gets to a consumer and they too can be making use of financial products like the account from which they pay, the card they pay with and other products like insurance for the card or the purchase.
  
  In the BBC documentary one of the contributors asked the question whether we want banks to be utilities or profitable businesses. What no-one seemed to voice is that if they (the banks) are not utilities then the only place they can get their costs and profit from is by eating into each of the pounds other, non-banking, businesses spend with each other. It should be obvious but we do not grow an enormous banking economy from nowhere – it has to be powered by general commerce. Each small take by the bank is like a tiny frictional force on the progress of the general commercial economy. Assuming that banks do not over-charge for any one service then any of these tiny forces on its own is acceptable. In fact having a few of them would not seem to matter. As banking grows though the mounting scale of all the services and their accumulated tiny frictions will at some point begin to drag the rest of the economy.
  
  With no banking nothing happens but it seems to me that there is such a thing as too much banking. Eventually we reach a point where those tiny frictional forces start to slow the rest of the economy down. A point where the friction is greater than the benefits of the bank’s services.
  
  Where is that point? I think that is the question.

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