For example, the creation and eventual proliferation of equity mutual funds offered a variety of savings options to American households for which ownership of a diversified portfolio of equities is either practically burdensome or financially impossible. This development posed a challenge for the liability side of banks’ balance sheets, as households reduced the share of their savings in traditional bank deposits.
But it is hard to argue that this challenge would have merited limiting the availability of mutual funds. Nonbank intermediaries can also provide credit to borrowers that are underserved or unserved by traditional banks.