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I- Different means of financing

A- Financing without intermediation or by mutual agreement

Money is the liquidity that makes it possible to exchange all goods between them, to manage the discrepancies between the time of income collection and the time of expenditure. Currency needs are multiplying with economic agents and their activities in time and space. A distinction is made between institutional sectors in need of financing (mainly companies and public administrations) and institutional sectors with financing capacity (e.g. households)

The meeting between these two sector groups is often difficult and raises the problem of matching demand and supply at a specific time. It is the financial intermediaries who facilitate this meeting.

So we move from over-the-counter financing to intermediated financing and then, for more complex reasons, financing is done through market mediation.

B- Intermediated and indirect financing

Financial intermediaries such as banks act as intermediaries between agents with capacity and need for financing. These financial intermediaries will issue secondary debt to finance their "secondary debt". These financial institutions receive from agents with the capacity to finance resources (savings) to whom they remit these secondary debt instruments. With the money thus received, they will be able to grant loans, i. e. to agents in need of financing, by purchasing primary securities from them. This intermediated financing has advantages over OTC financing:

C- Direct financing and its benefits

Direct financing on markets is carried out by issuing primary securities (i.e. shares and bonds). These securities are offered directly on the primary markets and acquired or subscribed by agents with the capacity to finance against money. This technique has the following advantages.

1. the space is expanded and financing is provided in a larger market at a lower cost
2. the primary securities are standardised and tradable on a secondary market. These securities are then financial instruments that consist of debt securities, such as bonds. We also have property titles such as shares. Finally, we have shares in UCITS, i. e. baskets of bonds, shares, etc.
3. the number of securities is large and allows for diversification of risks
4. transformation is increased since agents in need of financing can issue very long-term property titles (99 years) and agents with financing capacity can hold financial instruments in the very short term (30sec).
5. the liquidity of the securities is increased

D- The disadvantages of direct financing

1. the securities offered are increasingly complex
2. the volatility of the securities may be high
3. the number of issuers is increasing and it is becoming increasingly difficult to know
4. information asymmetry reduces transparency and therefore there is also power asymmetry.
5. power asymmetry is largely related to the power of financial institutions and savers.

II - Disintermediation and market development

The development of markets or disintermediation since the early 1990s is explained by the following reason:

A- Globalisation and decompartmentalisation of markets

The decompartmentalization is characterized by the elimination of the distinction between short-term and long-term markets. We have a unified market where financing maturities range from 24 hours to 99 years.

This decompartmentalization is linked to the disappearance of fiscal and economic regulations, i.e. deregulation. National markets have opened up to non-residents and therefore there is a trend towards transnationalisation of markets. It is therefore the law of supply and demand that will govern this type of market.

B- Deregulation and dematerialization

Technical progress has helped to develop the exchange of financial securities. These technical advances concern the dematerialisation of financial securities and currency. The exchange of information is facilitated. Technological progress facilitates globalization and these innovations concern all market components: securities that are adapted to market needs, quottassion methods and objectives.

III- The reasons for the development of the French market economy

A- Observation and evolution

It was around 1985 that the financing of the French economy was channelled through the market. From 1994 to 2009 the intermediation rate rose from 54% to 41.1%. But disintermediation has slowed in recent years, especially since the 2007 crisis. And we are witnessing a new intermediation. This re-intermediation is carried out by organisations that do not have the status of banks but which often belong to credit institutions.

(a) Market development and disintermediation

The French economy is adapting to European and international competition and the financing method is changing from a debt economy to a market economy. The debt economy is characterized by the following elements: agents take on short-term debt with a lender: for example, households and businesses that borrow money from commercial banks. The State goes into debt via the public treasury with the central bank. But with the development of transnational financial markets and the risk of relocation of financing, the integration of the financing of the French economy into a market logic becomes inevitable.

(b) As exchange controls have disappeared, financial flows in Europe and around the world are free.

The central bank determines monetary policy through interest rates and France's monetary strategy is as follows: to promote a strong franc within the European monetary system. The Banque de France controls interest rates to attract funds, new securities are created.

(c) Unification of markets

The distinction between money markets (short-term) and financial markets (long-term) disappears because the agents involved in the markets are the same. Securities are exchanged for currency without being able to determine whether they are short term or long term. The price of the securities is the interest rate, i.e. the price of the currency.

(d) The introduction of the euro and changes in financing methods

Financial unification homogenizes national markets. This homogenisation concerns the means of payment, monetary policy, interest rates, financial securities and the procedures for issuing securities. Financing methods are moving closer together and as markets develop, this is reflected in a decline in the number of monetary financial institutions. EMU provides a framework for the integration of European financial markets. In particular, EMU sets the rules for financing the economy and determines the channels through which monetary policy is transmitted, with one main objective: to avoid inflation. OTC financing puts a lender and a borrower in direct contact. The borrower issues a primary security corresponding to a primary debt against currency.