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Tuesday 12 May 2015

Will the Internet ever change the face of Finance

The importance of traditional financial intermediation services, and hence of the smaller banks that typically specialize in providing those services, tends to increase during times of financial stress. Indeed, the crisis has highlighted the important continuing role of community banks and the smartest finance people out there all agree that the big banks aren’t really focusing as much on the lending business as smaller banks. For example, less than 10% of Bank of America’s assets come from traditional banking deposits. So a shutdown by banks is really far from cataclysmic.

While banks once dominated business lending, today nearly 80% of all such loans come from nonbank lenders like life insurers, brokerage firms and finance companies. Banks used to be the only source of money in town. Now businesses and individuals can write checks on their insurance companies, get a loan from a pension fund, and deposit paychecks in a money-market account with a brokerage firm.

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