Why banks and life insurers may disappear

Regulators of banks and life insurance companies want the savings that pass through these financial intermediaries (deposits for banks, savings invested in life insurance policies) to be risk-free. Since the assets of banks (due to default rates on loans) and insurance companies (due to the variability of financial asset prices) are risky, for their liabilities to be risk-free these financial intermediaries must have a very large (and growing after the crisis) capacity to absorb risks, which requires them to hold very substantial and growing capital. Since banks and life insurance companies have to make a return on their capital, their intermediation costs have to become substantial ( they must have large margins to provide a return on their capital). Intermediation of savings by banks and life insurers is therefore becoming expensive and un competitive, especially in an environment of low interest rates, which means that it will decline: corporate financing will be increasingly disintermediated, savers will have an interest in using forms of investment (ETFs, for example) other than life insurance. We can therefore clearly see that banks and life insurance companies are threatened by the desire to protect savers from risks. We will illustrate this issue by the case of France.