DISINTERMEDIATION AND ITS EFFECT ON THE STABILITY OF SAVINGS CAPITAL AT FINANCIAL INSTITUTIONS

Abstract

THE CAUSES AND EFFECTS OF DISINTERMEDIATION Disintermediation is a relatively new term on the financial scene in America. The term was first coined in mid‐1966 and has since, to the dismay of many, become part of the daily vocabulary of bankers and economists. Originally, it sprang up to describe the outflow of funds from deposits at financial intermediaries (commercial banks, savings and loan associations and mutual savings banks) to investments yielding a higher return. Since that time, disintermediation, has taken on several additional forms such as fractional disintermediation, which addresses differences between the maximum interest rate that can be paid on a time deposit with a specified maturity at a financial intermediary and the interest rates prevailing on the similar instruments in the open market. Another new form of savings outflow is passbook disintermediation which will be discussed later. No matter which form of disintermediation is addressed, the same difficulty exists for the depository institutions — how to remain competitive when interest rates rise above the maximum ceiling rates allowed by law.

Citation

WALKER, E. (1979), "DISINTERMEDIATION AND ITS EFFECT ON THE STABILITY OF SAVINGS CAPITAL AT FINANCIAL INSTITUTIONS", Studies in Economics and Finance, Vol. 3 No. 1, pp. 63-75. https://doi.org/10.1108/eb028606