THE SCOPE, PROSPECT AND IMPLICATION OF NEW FORM OF FINANCIAL INTERMEDIATION FOR MONETARY POLICY IN INDONESIA

Ferry Syarifuddin () and Prayudhi Azwar

No WP/08/2019, Working Papers from Bank Indonesia

Abstract: The development of a new form of financial intermediation is proliferating. We define a new form of financial intermediation as a shadow banking activity followed by the use of financial technology. Banking sector is the important part in the shadow banking system since banking channeling fund to shadow banking entities like trust companies and wealth management companies. Further, banking sector itself create subsidiaries which play in shadow banking field since the banking sector has strict regulatory boundaries. In order to see the development of new form of financial intermediation, we provide Indonesian shadow banking map. Furthermore, the new form of financial intermediation has an undoubtedly bright prospect in Indonesia since it has an abundance and growing of internet users in Indonesia. It encourages financial institutions to adopt financial technology and develop a new form of financial intermediaries. However, the growth of this phenomenon accompanied with out of the box innovation and benefits, but create more heightened risks which need to be mitigate. Therefore, we elaborate more about this phenomenon in the prospect section. The rapid growth of new form of financial intermediation has an implication on the effectiveness of monetary policy. Using monetary policy rates, we tested this policy rate on one shadow bank institution. It shows that none of the monetary policy has significant impact on the shadow bank’s return, but has significant impact on the specific shadow bank’s asset under management growth. In detail, BI deposit rate has positive impact on the shadow bank’s product which mainly allocated in equity and negative impact on the product which mainly allocated in Money Market. Meanwhile, interbank rate has impact on the product which mainly allocated in debt securities.

Keywords: Financial intermediation; Financial technology; Monetary policy; Shadow banking (search for similar items in EconPapers)
JEL-codes: E52 G18 G23 O16 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2019
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