The Relevance of Financial Theory in the Modern Era in the Banking Sector Suwedy1, Arnianti2, Ali Supriadi3, Alviani Ariska4
Palu Muhammadiyah University
Abstract
This study aims to re-analyze the relevance of classical and modern financial theories in the context of the current banking industry, evaluate the suitability of the theory with the digitalization phenomenon, and present a synthesis of the development of empirical literature related to the modern banking sector. The research method uses a narrative review approach with data sources in the form of reputable international journals, SINTA national journals, industry reports, and literature reviews from international institutions. The analysis is carried out through thematic analysis, comparative review, to map the development of concepts and empirical evidence that supports or rejects financial theory. The results show that classical theories such as Modigliani-Miller, CAPM, and the Efficient Market Hypothesis (EMH) still have relevance value, but are limited in explaining digital risk dynamics, managerial behavior, and new competition structures in the banking industry. Modern theories such as behavioral finance, asymmetric information, market microstructure, and financial innovation theory are better able to describe the phenomenon of digital banking, big data based credit scoring, cyber risk, and changes in banking business models. Empirical findings suggest a paradigm shift from traditional risk-based linear theory to data- and behavioral-based risk analysis models, including an increasing role of algorithms and machine learning in credit risk mitigation. This study recommends the need to integrate classical financial theory with technological and behavioral approaches in order to build a theoretical framework that is more adaptive to digital developments. In addition, the results of the study contribute to practitioners, regulators, and academics in understanding the direction of the evolution of financial theory and its implications for the stability of the modern banking system.
