Banks, Digital Banking Initiatives and the Financial Safety Net: Theory and Analytical Framework


  • Stephen Lumpkin United Nations, previously OECD
  • Sebastian Schich OECD Directorate of Financial and Enterprise Affairs



This report presents an analytical framework for exploring the implications of Fintech innovations for incumbent banks and for provision of thefinancial safety net. The focus is on “digital banking initiatives”, that is,on Fintech initiatives that provide retail financial services akin to thosetraditionally provided by banks. Banks perform a wide range of functionsfor individual and institutional customers that help facilitate large-scaleeconomic activity. In fact, in most economies the system of financialintermediation centres on banks and relies on their core products andservices for financing of the economy and the maintenance of liquidity.On account of the central role banks play in the financial system, alongwith concerns about potential systemic instability linked to the riskinessof their activities, these institutions have long been regarded as “special”, as reflected in their prudential regulation and coverage under thevarious provisions of the financial safety net. Recent developments raisequestions about the special status of banks. Two sets of questions are addressed herein: To what extent do new digital banking initiatives changethe role that incumbent banks play in the financial system and the waythat they perform their functions? To what extent are some of the newdigital banking initiatives securing the benefits of the financial safety netwithout paying the commensurate price? To help address these questionsthe report first revisits the literature on core functions of the financial system to provide a framework for analysing recent developments. Particularattention is paid in this context to banks and their products and services.The “special” role of banks is discussed, which links to the provisionsof the traditional safety net. These overview sections are followed byevidence on Fintech innovations that overlap the core banking products.Based on an examination of the characteristics of these new initiatives,the study then touches on the issue of whether banks are still special andwhether some of these initiatives are or should be covered by financialsafety net provisions.


Banks, Digital banking initiatives and the financial safety net, Theory and analytical framework


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