As an intended consequence of these regulatory changes, banks have been steadily deleveraging, in particular by reducing the riskiest positions on their balance sheets. The contraction of bank intermediation has been accelerated by two factors. First, the macroeconomic environment, with its low level of interest rates and flat term structure, has put further downward pressure on banks’ profitability.
Second, banks are facing increasing competition from fintech companies, which use technological innovation to offer services such as payments and asset management.