Banking Disintermediation

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Recommended: Results of financial disintermediation

Introduction

With the development of financial system and information technology, commercial banks that used to be the intermediary between surplus and deficit economic players, are gradually losing their traditional roles. Table1 shows that deposits in US commercial banks decreased over 60% overall from 2006 to 2010. Whereas, with the deregulation of financial markets, companies finance or invest directly by the form of securities, and banks start to create investment banking.

Being a hot spot, there have been many researches and arguments about disintermediation. Considering the responsible factors, Bennaceur and Goaied (2008) believe that the developing of stock market contributes to commercial banks’ profitability which is a considerable factor of disintermediation; Walker’s paper illustrates, one of the reasons is the special balance sheet structure of commercial banks (Walker, 1993). When it comes to the effects of disintermediation to banking industry, Schmidt, Hachethal and Tyrell (1999) asserted, the importance of bank-based was not replaced by the market-based financial system; Bikker and Bos (2005) as well as Howcroft (1998) argue that, disintermediation yields a transformation of banks to act as investment agencies.

This paper will analyse this issue on the three direct aspects of profitability, risk and liquidity initially, then the main effects of disintermediation on banking industry will be assessed in the section II. Finally, except for summarising the discussion, an evaluation of this discussion and a prediction of banks’ function in the future will be layout in the conclusion.

Section I – Responsible Factors of Banking Disintermediation

As researchers have studied, there are many factors related to ...

... middle of paper ...

...dies in Economics and Finance, 3(1), pp. 63-75.

Bank of England (2011) Statistics. Retrieved 6 March, 2011 from http://www.bankofengland.co.uk/statistics/index.htm.

The US Federal Reserve (2011) Assets and Liabilities of Commercial Banks in the United States – H.8. Retrieved 26 March, 2011 from

http://www.federalreserve.gov/releases/h8/current/default.htm.

Lloyds TSB(2011) Two year fixed rate cash ISA. Retrieved 15 March, 2011 from http://www.lloydstsb.com/savings/fixed_rate_cash_isa.asp.

NatWest(2011) Fixed Rate ISA. Retrieved 15 March, 2011 from http://www.natwest.com/personal/savings/g2/isas/fixed-rate.ashx#tabs=section1.

Santander(2011) ISAs – Savings. Retrieved 15 March, 2011 from http://www.santander.co.uk/csgs/Satellite?appID=abbey.internet.Abbeycom&canal=CABBEYCOM&cid=1210607970481&empr=Abbeycom&leng=en_GB&pagename=Abbeycom%2FPage%2FWC_ACOM_TemplateY2.

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