Denis Beau: What will the bank of the 21st century look like?
Introduction by Mr Denis Beau, First Deputy Governor of the Bank of France, at the Crypto
Finance Forum "The future of France is within your reach", Roundtable "What will the bank of the
21st century look like?", 19 July 2021.
* * *
To launch our discussion on 21st century banking, I would like to make three observations and
offer a prognosis.
1. The universal banking model, which is particularly strong in France, in the form of large
integrated bancassurance groups that combine the functions of deposit-taking and credit
distribution and offer a wide range of financial services, showed its resilience during the two
major crises we have experienced since the beginning of the century.
Not only did our banking sector show its resilience, but during the Covid-19 crisis it was also able
to meet companies' financing and cash flow needs, and to contribute very actively to the roll-out
of support measures decided by the French government and the European Central Bank.
2. The dynamism of non-bank financial intermediaries (insurance companies, funds, etc.)
since the 2008 financial crisis.
This has resulted in the development of non-bank financing, which has grown at an annual
average rate of 7.5% in the euro area. Since 2002, the share of bank loans in euro area debt has
been halved and it represented only 37% of euro area debt in 2019.
As a central banker responsible for ensuring financial stability and the proper financing of the
economy, I welcome this diversification of the sources of financing for the real economy.
3. The impact of new players in the financial intermediation ecosystem is likely to differ
Among these new players, tech companies are the most important. The model of these
companies is based on the breakdown of the activities of traditional universal banking into a
range of distinct core functions, such as payment routing, provision of financing, risk sharing and
capital allocation.
The impact of these new players on financial intermediation will most likely differ depending on
whether one considers start-ups or Bigtechs.
The role of start-ups will probably be determined by the following alternative, as they do not have
sufficient resources to "supplant" the established players: cooperate or even go under the control
of an established player or compete in niche segments, such as crowd-funding, online lending or
payments.
The impact of Bigtechs on financial intermediation may be very different, as they have substantial
financial resources, a strong brand image, a global customer base and privileged access to
cutting-edge technologies.
4. Can they nevertheless eliminate bank intermediation, if we take a long term
view? This question brings me to my prognosis to conclude my speech.
It seems to me that instead of eliminating bank intermediation, the competition exerted on banks
by non-bank financial players and by tech companies, as well as banks' reaction to this new
competitive environment, will probably lead to a redistribution of the cards of financial
intermediation, around a combination of several models that would include :
- The traditional bank intermediation model
- The non-bank financial intermediation model implemented by the asset management sector
- A so-called "re-intermediated" model in which Fintechs and Bigtechs play the role of
intermediary for banks, in particular vis-à-vis retail clients
- A completely disintermediated model based on Blockchain technology
I will not venture to forecast the weight that the traditional bank intermediation model will have at
the end of this transformation. This will depend in particular on banks' ability to rise to the
challenges they face, notably in terms of profitability and technology, and to adapt the services
they offer to the digital era but also on the fight against climate change.
Nonetheless, this transformation seems to me to clearly imply adjusting our regulatory
framework for all activities that will contribute to financial intermediation in the future.
These transformations will have a positive impact on the efficiency and stability of our financial
system, provided they are accompanied by better user experiences and more diversified
financing of the economy. But they also carry risks, which must be managed. This implies
reviewing the scope and content of certain regulations to ensure that the regulatory framework is
favourable to innovation and neutral with respect to technologies, but also guarantees an
appropriate and homogeneous treatment of risks throughout the financial system according to
the "same activity, same risk, same rules" principle. (e.g. non-bank financial players, technology
service providers, issuers and managers of crypto asset trading platforms)
Thank you for your attention.