Financial System Efficiency

We have already noted various features of Arab banking and financial systems and also identified that a major objective of the various financial liberalization programmes undertaken aim to promote more competitive, stable and better-performing operating environments. Inextricably linked to these objectives is the improvement in the efficiency of banks and the financial system overall. This chapter examines the main issues concerning the study of financial system efficiency. Among many functions the financial system performs, there are two that are essential for any economy: one is the administration of the payments mechanism, and the other is intermediation between ultimate savers and borrowers. However, undertaking these functions may not be sufficient for the financial system to maintain its wellbeing and performance. The experience of many financial systems that have experienced financial crises suggests an essential element in the functioning of the financial system is the extent of its efficient operation. This is crucially linked to the soundness and safety of the financial system overall.