A Case for Boring Banking and Re-Intermediation

Experience from the recent financial crisis quite clearly revealed the limits of deregulation. Instead of trusting in perfect financial markets, re-intermediation or “boring banking” seems to be a more promising alternative. In our discussion of the steps towards a European Banking Union that have been implemented so far, we seek to expose its shortcomings. Against this backdrop, we discuss whether boring banking is an economically and socio-politically appropriate goal at all. Outlining the economical functions of banks, we investigate whether a widely disintermediated financial system can work without frictions. Additionally, we evaluate the concepts of bank-based and capital-market-based financial systems from the perspective small and medium-sized enterprises. By way of example, the structure of the German banking industry as well as different business models are analyzed in the light of boring banking. We conclude with economic policy recommendations deemed necessary to promote – or at least preserve – traditional loan-making by banks.