The Evolution of Banks and Financial Intermediation by Nicola Cetorelli, Benjamin H. Mandel, and Lindsay Mollineaux

TL;DR - Financial intermediation has evolved from a bank-centered system to a more complex and specialized arena.

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Tags - banks, recession, credit intermediation chain

Questions answered:

  • What is the “new” state of financial intermediation?

Summary:

  • Recessions commonly result in part from disruptions to financial intermediary activity.
  • Intermediation has transitioned from a bank-centered system to a decentralized system, with non-bank institutions playing a large role (credit intermediation chain).
  • Decentralization of intermediation opens up opportunities for economies of specialization, while traditional banks may have a diminished role.
  • Banks have shown a remarkable capacity to adapt to the evolving system of intermediation (integrating non-bank entities).

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