Banks have played a central role in Western economies since the start of the industrial revolution. Their unique characteristic is to use low cost funding obtained via deposits to lend to the real economy. Lately their core position in the financial system is facing a multitude of challenges:
- Deposit competition from MMFs (and perhaps soon also from Central bank digital currencies)
- Lending to the real economy via NBFI steadily growing (globally size of NBFIs already close to banking sector)
- Market-making role in government bond trading under threat from trading firms (already materialized in US; quickly growing in euro area fixed income markets)
- Unresolved fragility of current bank structures and business models (cf SVB etc.; Credit Suisse collapse last year and „Too big to fail“ problem)
Scientific coordination: Martin Scheicher, SSM/ECB and SUERF Fellow
