After correcting for a number of measurement issues, we find that commercial banks' share of total financial intermediation in this country has been roughly stable over the last four to five decades. At most, banks may have suffered a slight loss of market share in the late 1980s and early 1990s. A case can be made, further, that this slight loss in market share was mainly a transitory response to a series of shocks to the banking industry that occurred over this period. On the other side of the coin, commercial banking has actually risen in importance relative to aggregate economic activity, even over the last 15 years. While banks have maintained a relatively constant share of intermediation, financial intermediation has been growing steadily relative to gross domestic product.
Many industries naturally expand or contract with the passage of time.
The demise of the buggy whip and the Hula Hoop industries were hardly cause for great concern. Commercial banks, however, have traditionally played a central role in the financial system. They have been key providers of liquidity. If technological change and financial innovation were making banks irrelevant, then, at a minimum, it would be necessary to rethink regulatory policy. Perhaps it would no longer be correct to focus the financial safety net around banks.