A critical evaluation of the role of banks

Abstract or Introduction

Having a deposit account and thus using a bank as an intermediary to take care for one’s savings seems usual and obvious for nearly everyone in the developed world. But in recent years, the public was confronted with several unpleasant events regarding the financial industry as a whole. There was the financial crisis in 2008 which can be defined as a caesura of the modern banking system: The worldwide financial landscape could only be rescued by multiple tremendous efforts of governments who bailed out shuttered banks and gave deposit insurance - sponsored by taxpayers, while the risk-takers were ‘rewarded’ with extraordinary bonus payments. Subsequently, the whole industry lost reputation and trust, which is actually the foundation of most of its business models. That situation has been followed seamless by the virulent “Euro-crisis” evolving in 2010 and finding its previous highlight in limited cash withdrawals for Greek citizens in 2015. Accompanied by the current low-interest environment where savers find no more positive riskless returns, the question ‘why do banks exist?’ is now more relevant than ever. The growing fintech industry which offers interesting alternatives to classic bank deposits enforces the questioning of the legitimacy of the existence of banks.

In the following, the models which explain banks’ presence will be presented and critically evaluated in order to give a thorough understanding of their role as intermediaries in the modern financial environment.