Question

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From the second e-Activity, summary the author’s or authors’ criticism of commercial banks. Provide a counter argument to the criticism using examples or evidence to support your response.

What’s more, from the second e-Activity the author argues that banks pay copious amounts of dividends instead of keeping the considerable amounts in reserves to be used in order to ameliorate future risks. In addition, the author disparages the banks by asserting that banks in the United States are still commanding the market as oligopolies, that is, they control the market as a collective organic unit. Moreover, the author argues that this relegates competitiveness especially in the banking sector as oligopolies have it all, and hence they don’t perceive any need to improve.

Nonetheless, it is noteworthy to keep in mind the actuality that customers as well as investors are profit oriented. Actually, this translates to the reality that devoid of higher dividends investors will be wet-blanketed not to invest in the commercial banks, a fact that will cause many banks to run under loses or even come to a close due to lack of  funds to run their operations.

I need a response to this question:

I appreciate your contribution to our discussion.  Is the profit motive and excess dividends you mentioned a “self-correcting” activity for banks?  By this I mean, if one bank does pay out too much in dividends to investors does this normally correct itself through market forces?  If so, what are some of those market forces at work in this situation?