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Technology and Intermediation: the Case of Banking

Author

Listed:
  • Michael J. Keane
  • Stilianos Fountas

    (Department of Economics, National University of Ireland, Galway)

Abstract

The aim of this paper is to look at ways in which the contribution of investment in technology to consumer welfare might be measured. One useful approach to this question is demonstrated by means of a simple spatial model of trade and transportation. The model is used to elaborate on a discussion found in Melvin (1990). The empirical part of the paper deals with the banking sector. A key function of the banking system is to facilitate intermediation between borrowers and lenders. Taking this, perhaps, somewhat restricted view of banks, the measure demonstrated with the spatial model is applied within the framework of a complete banking model to see, specifically, if intermediation costs have been reduced by technology. Using data for the commercial banking sector in Ireland over the period January 1986 to August 1996, we find that the gains from technology in the provision of banking services, provided they exist, have not been passed on to the bank customers in the form of a lower bank interest rate spread.

Suggested Citation

  • Michael J. Keane & Stilianos Fountas, 1998. "Technology and Intermediation: the Case of Banking," Working Papers 21, National University of Ireland Galway, Department of Economics, revised 1998.
    • Handle: RePEc:nig:wpaper:0021
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    File URL: http://www.economics.nuig.ie/resrch/paper.php?pid=25
    File Function: First version, 1998
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    File URL: http://www.economics.nuig.ie/resrch/paper.php?pid=25
    File Function: Revised version, 1998
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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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