Financial management varies from organization to organization and the nature of the business. Many individuals think that to learn effective financial management, one must understand the mechanics of financial management in banks. The banks in the United States have increasingly developed significant financial management expertise. This expertise can help a business with a successful financial management plan.
For a business to be successful, it must have strong financial management. Using the template of how banks manage finances will strengthen the financial management of the business. While the success or failure can hinge on multiple considerations, it comes down to profits. From the owner/CEO to the office support staff, financial management should be a priority. In some cases, hiring an accountant or professional bookkeeper will ensure that nothing financial will slip through the cracks. This will also allow the owner and staff to focus on daily operations.
The people who support the limitation of the banks’ size contend that big banks and the government policies that have indirectly supported these banks impose severe potential risks to the monetary system just because of proficient internal financial management. The recessions that have occurred in the past seem to have born that out because four of the biggest banks, including Citibank, Washington Mutual Bank, Wachovia Bank, and the Bank of America, had received assistance from the government.
Banks hinder effective financial management at the time of mergers and acquisitions. As many types of research have shown, at times, financial management adopts economies of scale for product revenue and a cost generating stream.
Like other industries, the modern advancements in financial management and information processing technologies have brought a revolution in the banking industry. For instance, small banks have conventionally enjoyed the advantage of lending to small borrowers and businesses where personal relationships and proximity were imperative to evaluate the risk of credit and to monitor borrowers. It is all possible to automate the process of financial management and interface it with other bank functions. Conversely, the new technology of financial management has brought a reduction in the cost of obtaining information, data, numbers, and hence skewed the pendulum in the bank’s favor.
Initially, technological advancements in financial management have more likely raised the fixed cost for the banks, such as having a generic platform of ERP (Enterprise Resource Planning). Also, current regulatory policies have given bigger banks more cost advantages than smaller banks, just because these banks proactively deploy automated financial management solutions.
The treatment of big banks by the government as automated financial management can also help generate economies of scale by lowered risk premiums demanded by the creditors of bigger banks, which can give them the advantage of funding over the smaller competitors. The arguments of the supporter of the limitation of sizes of banks can be more of weight if the source of scale economies would provide cost-effective and cost-beneficial solutions to financial management.
Hence, the policymakers must consider the loss of scale economies’ benefits when determining the benefits of shrinking the banks’ sizes. Also, it is suggested that instead of limiting bank sizes, the policy of discipline must be implemented for the systematically big banks.
In the end, finance management is the heart and soul of any business entity. Having a prolific and proficient financial management system and department should be of paramount importance for any business concern and ensure that the business operations are maintained at any level, despite any governmental or regulatory intervention. It is not necessary that the organization’s size matter, but what is important is how effectively the financial management operations work towards the betterment of the whole organization.
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