Financial Disintermediation
Financial disintermediation is the elimination of financial intermediaries such as brokers, banks, and finance houses between money givers, who in this case are investors or savers, and money consumers, who include borrowers. Disintermediation occurs when inflation rates rise yet interest rates charged by banks remain stable due to government regulation.
Depositors can earn larger returns by investing in mutual funds or securities. In the event that interest rates rise, investors will shift to making deposits, resulting in disintermediation (Ross, et al., 2013).
Disintermediation of Banks
There is disintermediation of banks happening despite the fact that it will not occur to the fullest. The corporate debt funded by banks in the euro zone was at 68% in 2008 and down to 61% in 2013, while capital markets lending was up from 10% to 15% in that period (BNP Paribas, 2016).
The syndications way of the bank as a budgetary delegate is at present being debilitated because of the relative simplicity of item execution in the market by other (non-bank monetary go-betweens), advancement of new advances (digitization) and change in purchaser inclinations (Alińska and Czepirska, 2017).
Changes in Customer Preferences
Due to the changes in customer preferences more weight is given to the services provided in the form of e-payment or the Fin Tech sector offer. Banking disintermediation is increasing because the number of companies able to access financing options is also increasing.
References
Ross, S. R., Westerfiled, R. W., Jaffe, J. (2013). Corporate finance (10th ed.). New York, NY: McGraw-Hill.
Alińska, A. and Czepirska, I. (2017). The development of payment services as an example of disintermediation in the financial system. Financial Internet Quarterly. Retrieved from http://www.e-finanse.com/artykuly_eng/345.pdf
BNP Paribas. (2016). Disintermediation or intermediation: Striking the right balance. Retrieved from https://group.bnpparibas/en/news/disintermediation-intermediation-striking-balance
