Disintermediation and the Role of Banks in Europe: An International Comparison

Abstract

The paper presents an empirical analysis of the alleged transformation of the financial systems in the three major European economies, France, Germany and the UK. Based on a unified data set developed on the basis of national accounts statistics, and employing a new and consistent method of measurement, the following questions are addressed: Is there a general trend toward disintermediation, with banks losing importance to the markets, that is causing these three financial systems to converge?

We find that there is neither a general trend toward disintermediation, nor toward a transformation from bank-based to capital market-based financial systems, nor toward a loss of importance of banks. Only in the case of France could strong signs of transformation as well as signs of a general decline in the role of banks be found. Thus the three financial systems also do not seem to be converging. However, there is also a common pattern of change: the intermediation chains are lengthening in all three countries. Nonbank financial intermediaries are taking over a more important role as mobilizers of capital from the non-financial sectors. In combination with the trend towards securitization of bank liabilities, this change increases the funding costs of banks and may put banks under pressure. In the case of France, this change is so pronounced that it might even threaten the stability of the financial system.

JEL Classification: G21, G23