FRAMEWORK ON MODERN BANKING

THEORETICAL FRAMEWORK/ MODEL SPECIFICATION The underpinning theory employed in this work is a theory arising from intermediation efficiency in an economy. This theory considers broad money supply and currency outside banks as major determinants of the interplay of other macro variables in the efficient management process of a given economy. The theory argues that the lesser the ratio of currency outside banks to broad money supply the higher the intermediation efficiency and vice versa. This suffices that when the currency outside banks diminishes as a result of the increase in the use of electronic forms of payment, particularly ATM and other e-card products, as well as banking habits, the intermediation efficiency will be positive, otherwise it will be negative. Based on the assumption above we may therefore specify the below equation: COB/M2= F (ATM+ POS+ MOB +BH)... (1) The above equation can be stated as follows or could be modified and transposed to reflect an intermediation efficiency mode L as follows: IE = ATM+ POS+ MOB +INTS+ Ut . . (2) Therefore we state the above as follows: IE= b0+ b1ATM + b2POS+ b3MOB+ b4INTS + Ut... (3)Where IE= COB/M2whichrepresents ratio of currency outside banks to broad money supply, reflecting the impact of the use of electronic forms of payment as well as banking habits. ATM = automated teller machine service value service value, POS = point of sales service value, MOB = mobile service value and INTS =internet service value .