The idea of a bank is something that someone grows to know early in their life, they may go with their parents to cash a check when young or even go to set up their first account while in grammar school. So to ask the question if banks are dying, or on the other hand have grown to be unnecessary in this day and age is something that might seem a little scary to some. When considering if banks are actually dying you must first consider what caused them to lose their market share.
In an attempt to stabilize the banking system, the federal government first set up the Federal Reserve System as a lender of last resort to provide liquidity to the banks during banking panics. Another way in which the federal government sought to maintain banking stability was to limit competition through anticompetitive regulations such as the Banking Act of 1933, which authorized Regulation Q. “Regulation Q was intended to maintain banks’ profitability by limiting competition for funds among banks and guaranteeing a reasonable spread between interest rates on loans and interest rates paid to depositors” (Feldman and Lueck). The only thing that was wrong with Regulation Q, was when interest rates would rise above the ceiling rate savers would seek out alternative investments which provided them with a better return, as a result the financial system introduced money market mutual funds. “Money market mutual funds gave small and medium-sized depositors an opportunity to earn market rates of return with low transactions costs” (Feldman and Lueck). Along with attracting away savers form banks money market mutual funds also gave borrowers with a new source of funds. “Large, well-established firms could raise short-term funds in the commercial paper market” (Feldman and Lueck), this alternativ ...