The Effect Of Financial Disintermediation On The Profitability Of Commercial Banks

In the 1960s, financial disintermediation first emerged in the United States. For the purpose of reduce the cost of obtaining capital, the Federal Reserve Bank issued the"Q Ordinance", which limited the maximum deposit rates of commercial banks. At that time, the serious inflation of American society led capital flow from the money market to the capital market. Subsequently, financial disintermediation emerged in Italy, France, Germany and other European countries. Financial disintermediation appeared relatively late in China.Financial disintermediation means the supply and demand sides of captical bypass the media for direct transaction. Broadly, the media refers to all kinds of financial intermediaries; narrowly, it represents the commercial banks. Commercial banks play a dominant role on China's financial sector, if commercial bank comes under attack, the entire community economic stability will be influenced. Therefore, this paper considers commercial bank as the object of study and explores how the financial disintermediation effects its profitability.Financial disintermediation is the inevitable product of market economy and further development of financial markets. Firstly, as economy develops, financing channels of the stock and bond markets and other capital market increase rapidly. Increasing direct financing channels caused assets side's disintermediation of commercial banks. Secondly, the development of capital markets also contributed to the increase of investment methods, companies can invest part of the idle funds to financial innovations, while residents can also purchase stocks and bonds by idle funds, which led to liabilities side's disintermediation of commercial banks. Finally, the development of market economy promoted the rise of new technologies, especially in recent years, the growth of third-party payment system caused a great impact on the status of commercial-bank as financial intermediaries, resulting in a technical side's disintermediation of commercial banks.The influence of financial disintermediation to commercial banks mainly includes two aspects:on one side, financial disintermediation have an effection on traditional deposit and loan of commercial banks, resulting in commercial banks to lower interest income; on the other side, in response to financial disintermediation, commercial banks explore innovative business actively and open up new revenue channels and model, which make non-interest income increase.This paper summarized previous scholars' study on the financial disintermediation and commercial bank profitability to build the whole frameworks and put forword research ideas. Then the paper analyzed the causes and characteristics of financial disintermediation, measured the degree of financial disintermediation, studied the factors affecting the profitability of commercial banks, which is worth noting is that financial disintermediation is considered as one of the factors to be analyzed. Finally, based on the analysis of the previous text, using 2004--2014 annual data for 15 listed commercial banks in addition to the Agricultural Bank, to analyze the impact of the financial disintermediation profitability of commercial banks in China empirically, and make relevant recommandations.Specifically, the paper is divided into five chapters:The first chapter is the introduction. The second chapter is literature review. The third chapter is about the analysis of financial disintermediation and commercial banking profitability. The fourth chapter is the empirical analysis on the impact of financial disintermediation of commercial banks. The fifth chapter is the conclusion and suggestions.