What is Reintermediation?

There are various contexts in which reintermediation can be used in finance, each context dealing with an additional step into an already existing system or the introduction of money into such a system. In banking and finance, the movement of investment capital from non-bank investments, back into financial brokerages can be referred to as reintermediation. This effort is usually done during times of market interest volatility and high risks in order to secure depository insurance on the capital. In simple terms, reintermediation describes the flow of an investor's funds into his bank deposit, from his non-banking investments such as real estate or the stock market.

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How Does Reintermediation Work?

It can be seen through its definition that reintermediation deals with the reintroduction of money from non-banking systems into banking systems. An example is the money movement from the manufacturing industry into the bank. Since reintermediation extends the supply chain by the introduction of a middle-man between the supplier and consumer, it causes a rise in price which doesn't favor the final consumer but the middle-man's expertise can be useful to the consumer. Reintermediation generally occurs when consumers are securing federal deposit insurances on account funds, due to the uncertainty of the financial markets movement. Disintermediation, which involves the movement of investment funds away from financial brokerages into other investments, is said to be the opposite of Reintermediation.