Do Banks Still Matter in the Bitcoin Era?

     Financial technologies such as Bitcoin , P2P lending and crowdfunding are just starting out, and companies involved in this industry are unlikely to pose a direct threat to traditional commercial banks. However, Randall S. Kroszner, a professor at the University of Chicago Booth School of Business, pointed out that their development will have a significant impact on the banking industry, monetary policy and the regulatory capacity of central banks.

     Research by former Federal Reserve Board member Kroszner has dissected how the rise of new forms of banking bypasses the traditional deposit and loan model, undermining the ability of central banks to regulate the economy through standard monetary policy. Once alternative financing channels in the form of digital currencies become widely used, the means of controlling bank interest rates (i.e., tightening or loosening loans by adjusting bank reserves) may have a more limited impact on the economy. Bitcoin does not require the control of banks or central banks.

     Kroszner believes that the commercial banking industry is still strong, because bank loans have grown faster than other types of loans since the financial crisis. In addition, he also mentioned some advantages that traditional commercial banks have over new forms, such as customer relationships involving deposits and loans can provide useful information for commercial banks to make credit judgments.

     He believes that the problem in the future is that whether it is large technology companies such as Google and Amazon or start-ups, they are likely to develop technologies that surpass the inherent advantages of banks, such as integrating and selling detailed information on borrowers that only banks can currently master, or surpassing the existing capabilities of banks in collecting comprehensive information. So, will there be some major innovation in the future that will trigger a wave of competition among banks?

     The answer is that this breakthrough innovation has not yet arrived. Kroszner has not yet seen the signs of a revolution in money and banking. But he believes that this major change will happen in ten to twenty years.