Effects of Bank Funds Management Activities on the Disintermediation of Bank Deposits

Abstract

This study investigates the alleged disintermediation of banks' traditional deposit-taking in favour of investment management activities. Using data on Australian bank-affiliated funds and a nine-year record of the parent banks' liability balances, this study finds that managed funds do not displace bank liabilities. Prudential capital adequacy requirements dissuade banks from using in-house managed investments as indirect conduits for raising funds in the same manner as deposit-taking.

National Culture and Bank Deposits

“…Allen and Santomero (2001) challenge the financial intermediation role of banks claiming that deposits are losing importance for banks over time because banks tend to engage more in investment management than attracting deposits. However, Allen and Parwada (2004) find that traditional banking activities, such as attracting deposits, are still necessary for banks because they have to comply with prudential regulatory requirements. Instead, non-traditional banking activities, for example, investment management, are only used as complements to traditional banking activities.…”

The Efficiency of the Retirement Income System in Australia During Financial Reforms

“…While these regulatory reforms coincided with a dramatic increase in the asset size of Australia's retirement income system, research evidence also shows that the growing size of the pension system in Australia have not been at the expense of other financial intermediaries including banks (Allen and Parwada, 2003;Edey and MacFarlane, 1991). This may suggest that the various reforms to Australia's pension system had created a lucrative retirement income system.…”