Comments on: The Voice for Financial Reform in the USA Gets a Boost http://www.discusseconomics.com/banking/the-voice-for-financial-reform-in-the-usa-gets-a-boost/ Join the conversation on a variety of economic and finance discussions. Thu, 09 Sep 2010 02:00:54 +0000 hourly 1 http://wordpress.org/?v=3.0 By: Yusuf Arslantas http://www.discusseconomics.com/banking/the-voice-for-financial-reform-in-the-usa-gets-a-boost/comment-page-1/#comment-27811 Yusuf Arslantas Sun, 04 Apr 2010 21:54:02 +0000 http://www.discusseconomics.com/?p=909#comment-27811 Starting out as places that would guard your money, banks became the main source of credit creation. Increasingly, however, borrowers are turning to the financial markets and to non-savings institutions, such as credit-card companies and consumer-finance firms, when they need a loan. This is reducing the profitability of traditional bank lending and has led many banks to enter new areas of business, such as selling insurance policies and mutual funds. Increasingly, too, traditional banks are selling off parcels of their loans in the financial markets by a process called securitisation. What the most efficient split is between bank lending and other sorts of lending is debatable. Economists argue endlessly about whether an economy such as the United States, in which firms rely more heavily on the equity and debt markets than on banks to fund their investment, is better than one such as, say, Germany, in which banks have traditionally been the main source of corporate finance. Starting out as places that would guard your money, banks became the main source of credit creation. Increasingly, however, borrowers are turning to the financial markets and to non-savings institutions, such as credit-card companies and consumer-finance firms, when they need a loan. This is reducing the profitability of traditional bank lending and has led many banks to enter new areas of business, such as selling insurance policies and mutual funds. Increasingly, too, traditional banks are selling off parcels of their loans in the financial markets by a process called securitisation.

What the most efficient split is between bank lending and other sorts of lending is debatable. Economists argue endlessly about whether an economy such as the United States, in which firms rely more heavily on the equity and debt markets than on banks to fund their investment, is better than one such as, say, Germany, in which banks have traditionally been the main source of corporate finance.

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