disintermediation

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Disintermediation

Withdrawal of funds from a financial_institution in order to invest them directly.

Disintermediation

The act of making a withdrawal from a bank or other financial institution in order to use the funds for investment purposes. For example, one may withdraw $10,000 from his savings account in order to buy a stock without the bank's intermediation. This has become less common with deregulation of banking because more banks can offer investment services, reducing the incentive to withdraw.

disintermediation

The withdrawal of funds from financial intermediaries such as banks, thrifts, and life insurance companies in order to invest directly with ultimate users. Disintermediation was more of a problem when financial intermediaries were limited in the returns they could pay to savers. Deregulation of financial intermediaries was intended to dampen the periodic swings toward disintermediation. Compare intermediation.

disintermediation

a situation where a FINANCIAL INTERMEDIARY such as a BUILDING SOCIETY is forced to reduce its lending operations because of the withdrawal of deposits from it and because it is unable to attract new funds. Disintermediation usually occurs (and then only temporarily) when an intermediary (see INTERMEDIATION) fails to adjust its borrowing rates on deposits promptly when interest rates rise, so its rates are insufficiently competitive vis-à-vis other deposit-taking institutions.

disintermediation

The situation that exists when depositors withdraw their savings from financial institutions and invest the money directly in the marketplace,usually because they can obtain a higher yield even though also running a higher risk of losing their money.

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