Banks are defined by Gertler and Karadi (2011) as commercial institutions which act as financial intermediaries in the financial market. Imperfect capital markets where transaction costs and asymmetric information exist are the reasons for the existence of banks, as stated by Scholtens and van Wensveen (2000). According to Allen and Santomero (2001) their aim is reallocating the resources of economic units with surplus funds, when they have more money than they need to spend, to economic deficit units, when they need to spend more money than they have. To do this, they must be in possession of a banking license, as explained by Ajwain (2010). As highlighted by Kashyap et al. (2017) they are using both sides of their balance sheet in doing so. In fact, they are taking deposits from savers and making loans to borrowers. Kashyap et al. (2002) argued that this kind of business is subject to three tasks of transformation. The first transformation is maturity. Typical bank loans given are medium or long-term, while received deposits are usually payable on demand. Secondly, there is risk transformation regarding the capability of intermediaries to diversify risks such as default risks of bank loans or interest risks of bonds bought by the bank. The third task of transformation refers to size issues. Banks pool small savings of savers to make large loans to borrowers. Banks are, as outlined by Sikdar and Kumdar (2017), also providing payment services to their customers. In doing their business, banks concentrate on the mass market with focus on individuals and smaller businesses, as described by Ashton (2002). Byers and Lederer (2001) call these kinds of banks inside the whole banking industry retail banks.
Inhaltsverzeichnis (Table of Contents)
- Banks as Financial Intermediaries
- Role and Functions of Banks
- Intermediation Theory and Imperfect Markets
- Transaction Costs and Intermediation
- Value Creation Through Maturity and Risk Transformation
- The Impact of Information Technology
- Evolution of Financial Markets and Banking
- Emergence of Fintechs and New Competitors
- Technological Disruption and the Future of Banking
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This essay examines the role of banks as financial intermediaries in the context of imperfect capital markets. It explores whether banks are still necessary in the modern financial landscape, considering the impact of technological advancements and alternative financial systems.
- The essential functions of banks in facilitating financial transactions
- The impact of imperfect markets on the need for intermediaries
- The role of banks in managing risk and reducing transaction costs
- The transformative influence of information technology on the financial industry
- The emergence of new competitors and alternative financial systems
Zusammenfassung der Kapitel (Chapter Summaries)
- Banks as Financial Intermediaries: This chapter defines the role of banks as financial intermediaries and explores the reasons for their existence in imperfect markets characterized by transaction costs and asymmetric information. It highlights the key tasks of banks in reallocating resources, transforming maturity, risk, and size, and providing payment services. The chapter also discusses the nature of retail banks and their focus on mass market customers.
- Intermediation Theory and Imperfect Markets: This chapter delves into the concept of intermediation theory, arguing that it arises from imperfect markets with asymmetric information. It explains how banks solve market inefficiencies by connecting savers and borrowers, overcoming information barriers, and reducing agency problems. The chapter also considers the implications of perfect markets on the role of intermediaries.
- Transaction Costs and Intermediation: This chapter examines the impact of transaction costs on financial transactions in imperfect markets. It explains how banks, as financial intermediaries, reduce these costs by providing efficient capital allocation, lowering search costs, and minimizing verification and monitoring costs. The chapter also explores the role of banks in enforcing financial contracts and the concept of economies of scale.
- Value Creation Through Maturity and Risk Transformation: This chapter explores how banks add value to the economy by handling deposits and loans with different maturities and transforming illiquid long-term assets into liquid short-term claims. It discusses the potential for bank runs and the importance of risk management in financial intermediation.
- The Impact of Information Technology: This chapter explores how information technology has transformed the financial market, expanding existing markets and creating new ones. It highlights the role of fintechs and new competitors in challenging traditional banking models. The chapter also discusses the need for banks to adapt and embrace new technologies to remain competitive.
Schlüsselwörter (Keywords)
The key focus topics of this work are financial intermediaries, banks, imperfect markets, transaction costs, information asymmetry, risk management, information technology, fintechs, and alternative financial systems. These concepts are explored through the lens of the evolving role of banks in a dynamic financial landscape.
- Quote paper
- Moritz Meyer (Author), 2018, Can we live without banks?, Munich, GRIN Verlag, https://www.grin.com/document/426432
