Banking and the banking sector as a whole has been of more economic benefit than it has been a danger. This however, does not make the sector free of risks that are negatively affecting the economy of any given country. The industry has experienced a lot of technological changes with the shift to digital and online banking. They have however, adapted fast and are catching up by re-structuring their functions and operations to be at par with arising issues and trends such as online banking.
The banking sector is an essential part of the economy and is the main determinant factor in the changes that are experienced. Certain economic woes such as a financial panic arise from the increase in individual bank failures and feverish stock sales and usually end up in a market crash. This could further lead to a financial contagion due to the global trade between different countries. Other rising trends such as the increased number of shadow banks that lend money just like regular banks but with lighter regulation measures has affected the sector. This factor has arm-twisted traditional banking institutions to resolve to other means such as the act of maturity transformation and inflation of stock and assets such as currency or asset bubble which are detrimental to the economy in the long run.
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All these issues in the banking sector trickle down to affect the common man with time due to their major effects on the economy. The inflation of the price of goods and services and rise in the cost of living for citizens is therefore a direct effect of failed banking practices.
References
Angbazo, L. (2017). Commercial bank net interest margins, default risk, interest-rate risk, and off-balance sheet banking. Journal of Banking & Finance , 21 (1), 55-87.
