A THEORY OF THE BANKING FIRM

AUTHOR – DR. DEMA MATROUK ALOUN, ASSISTANT PROFESSOR OF COMMERCIAL LAW, FACULTY OF LAW/ ZARQA UNIVERSITY. CONTACT – DALOUN@ZU.EDU.JO

BEST CITATION – DR. DEMA MATROUK ALOUN, A THEORY OF THE BANKING FIRM, INDIAN JOURNAL OF LEGAL REVIEW (IJLR), 4 (2) OF 2024, PG. 859-872, APIS – 3920 – 0001 & ISSN – 2583-2344.

Abstract

The theory of the banking firm proposed in this paper is essentially a version of the “New Theories of the Firm” based on product differentiation rather than price discrimination. The firm is assumed to exist because it has a cost-reducing role in the phases of the productive process which concern consumers’ goods, just as the bank has a clear role in the allocation of productive resources. However, I shall maintain that the special role of the bank is successful only in a particular structure of financial markets. Transaction costs and uncertainty are shown to motivate the existence of the banking firm. The indispensable function of the bank is to supply to depositors non-neutrality of wallpaper, i.e. to supply liquidity. The decisions of bank depositors are analyzed and the cash-in-advance constraint is derived. Some bank behavior, such as the desire for deposits, the desire for collaboration with the State and the determination of financial and policy equality, are also studied. Formal demonstration is carried out of the Keynesian theory that the propensity to create liquidity can be either too high or too low in terms of the performance of the economy.

Keywords: Theory, Banking Firm, Financial, commercial.