Brief Analysis Of The Path From Bankbased Financial Intermediation To Securitization

Financing through securitization can be seen most probably as one of the most important financial innovations in the second part of the last century, unfortunately as we all know the rapid growth of the securitization market was also a primary factor in the 2008 global financial crisis. This paper shall shortly outline the transition from banking intermediation to a structural shift away from financing by banks and the role of securitization in this process. Within the securitization process, a company is able to obtain funds in the capital markets at a lower cost, than if it could have raised the funds directly by issuing more debt or equity. This technic allows for credit to be provided directly to market rather than through financial intermediation, which can be seen in an increasing trend towards disintermediation, also often referred to as “cutting out the middlemen.” However, the financial crises taught us that banks should keep a critical role in the finance system, guaranteeing that their interests are aligned with those of investors thus trying to prevent the excesses of the total disintermediation models that have substantially led to subprime crisis.