Market Structure of the Banking Sector and the Turkish Banking Sector

Abstract

The main function of banking is to contribute to economic growth by providing sectors outside of the finance section with financing that they need and fulfilling an intermediary role between lenders and borrowers. This intermediary function increases the importance of the banking sector compared to other sectors of the economy. Market structures are very significant in terms of firms' market entry and exit and stay on the market. Markets are subject to four different distinction as perfect competition, monopoly, oligopoly, and monopolistic competition markets. The objective in the market is to ensure efficiency in production and sales by pulling down the costs of production through competition. The factors determining the market structure are the numbers of firms in the sector, the degree of restriction on the entry and exit of firms in the industry, the number of those requesting products and homogeneity degree of product produced The banking sector, unlike other sectors, has unique characteristics. Competition policies which are valid in other sectors are not appropriate for the banking industry. Market openness for instability and market failures change the structure of competition. Asymmetric information, product replacement costs and externalities create barriers to entry which, allows banks to be in a dominant position in their markets. This study examines the main indicators showing concentration, effectiveness, depth, and intermediation functions of Turkish banking sector and investigates in which market structure the sector operates. In this regard, it has made policy recommendations over the results obtained.