FINANCIAL CONSOLIDATION AT THE CORPORATE AND INDIVIDUAL LEVELS

2007-03-08 10:33:40

( Financial )



Financial consolidation is the practice of combining information from different financial systems to create an aggregate comprehensive financial statement following proper accounting and financial reporting standards. On the corporate level financial consolidation in the financial sector includes mergers of banks, securities firms and insurance companies. While on the individual level, financial consolidation includes student loan consolidation, among others.

Financial Consolidation: On the Corporate Level

Frequency

Consolidation in the financial sector has accelerated in the past decade notably in its value and frequency. The number of banks, in particular, decreased as a result of the consolidation but apparently the number and amount of assets in the industry has increased.

Factors to Financial Consolidation

Improvements in information technology, financial deregulation, globalization, and increasing shareholder pressure on financial performance contributed to consolidation of financial institutions. These factors resulted to competitive business environment which drive business institutions to merge with another to strengthen their financial status and retain a broader market share.

Impacts of Financial Consolidation

Merger increases future profit through reduction in cost and increasing revenues as a result of streamlined overhead expenses, systems and increase in market base. It permits firms to be large enough to access larger capital, larger market at a lower cost, and favourable credit rating. Since financial markets remained competitive, financial consolidation’s impact to monetary policy is minimal.


Financial Consolidation: On the Individual Level

Student loan consolidation combines several loans into one loan creating newer terms and interest rates. It simplifies loan repayment with only one loan payment a month for various loans. Also, it is cheaper since the interest rate you are paying is lower compared to paying different rates for different loans.

You can also prepay your loan without penalty which is very important particularly when you decide to extend your term of payment during student loan consolidation. It will discipline you to make your payments well since you can only apply for student loan consolidation once.

Financial consolidation whether happening at the corporate or individual level impacts on a firm’s or individual’s financial performance and sustainability which benefits the economy aggregately.


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