The conventional narrative reposes upon the concept of financial intermediation, that is, financial firms are channels through which funds are borrowed and then lent. It asserts that "financial intermediation" is the most efficient allocation of capital, because the "financial intermediary" has advantages in information essential to select the borrowers of capital. A vast literature supports this theory. E.g
., Thorsten Beck, Robin Dottling, Thomas Lambert, and Mathijs van Dijk, How banks affect investment and growth: New Evidence 02 July 2020.
However, even Beck et al
acknowledge that their model applies to investments in tangible assets not intangible assets like those comprising the knowledge economy. In addition, the narrative cannot account for events precipitating the 2008 Financial Crisis where, under the conventional narrative, surplus funds were channeled to the housing market and to securitised vehicles like mortgage backed securities. This "funding" did not allocate capital efficiently; rather, it fed an asset bubble, unrelated to economic fundamentals, but relying upon a belief
that turns out to be mistaken. Nor can the conventional narrative account for the flow of funds deployed for speculation by LTCM. See also
, Oliver Wyman, The Real Financial Crisis: Why Financial Intermediation is Failing? 2012 at https://www.oliverwyman.com/our-expertise/insights/2012/jan/state-of-the-financial-services-industry-2012.html
Moreover, interest rates on demand deposits do not provide any incentive to save. According to World Bank, in 2020, deposit interest rates in Switzerland were -0.384; in Bulgaria ; in Singapore [0.2] and in Chile [0.9]. There is no recent data for major western countries. See, World Bank at https://data.worldbank.org/indicator/FR.INR.DPST?locations=SE-CH&most_recent_value_desc=false
. The question arises: if you have surplus "savings", you are not going to place them with a bank.