Future of Banks: From The End of Banking -Part 1

First, solving the problem of information asymmetry in the credit process. If the supply side and the demand side of capital are not familiar with each other, there will be a huge information asymmetry. The demand side knows its own situation better, while the supply side knows little about the opposite. As a result, each loan has a higher cost such as time-consuming and laborious preliminary investigations, monitoring of the cost after the loan, and recall after the loan expires. The bank transfers the above problems from the fund supplier to itself. The bank has established various mechanisms to solve the information asymmetry. The supplier only needs to deposit the fund in the bank, without worrying about whom the fund is lent to or whether the loan can be repaid on time.

Second, matching the different needs of both borrowers and lenders. Depositors may provide short-term funds, and the scale of personal funds is limited. However, the demand side may need long-term and large-scale funds to invest. Without a bank, the mismatch between the supply of funds and the demand period and scale makes it difficult to reach a loan contract. As an intermediary agency, the bank provides the time limit and scale of the fund conversion, so that the fund can be smoothly transferred from the supply side to the demand side. In terms of maturity, banks provide “contractual liquidity”, which means depositors can withdraw funds at any time according to the deposit maturity (such as current deposits); loan contracts between market entities lock the maturity of funds and in order to obtain liquidity from the market, the entity can only transfer the loan contract. If the contract transfer is difficult, market liquidity is more difficult to achieve.

Third, payment services provided by banks facilitate transactions. After depositing the funds in the bank, the depositor can conveniently use the funds to conduct transactions through various approaches such as checks, transferring money, letters of credit and other convenient payment tools.