The declining importance of banks
Frank Partnoy (author of FIASCO) argues in the FT (reg req’d) that banks will decline in importance and become smaller.
In the future, improved technology will reduce the number of human beings needed to allocate capital, as it has done in other service industries. People will also play a smaller role in dealmaking and trading, just as they do when we board a plane or shop for clothes. HSBC is downsizing so dramatically because its leaders look at technology companies and see their bank as a dinosaur that must shed weight or become extinct.
Squeezed between shareholders demanding a certain return on capital, a regulatory burden its competitors (in allocating capital) don’t necessarily have and technological advances, banks’ business model is bound to see drastic changes over the years to come. At the same time, it may be that the financial sector overall (i.e. investment funds, boutiques, insurance firms) fills the gaps left by the banks.
