In capital markets,
disintermediation refers to the practice by investors of shifting their
investments away from intermediate financial institutions, such as banks
and savings institutions, to direct investments at a higher rate of
interest in the securities and obligations of primary borrowers. This
structural change in the financial services industry raises interest
rate expectations of investors and, hence, raises the cost of the supply
of funds to intermediate credit sources such as banks and savings
institutions. Since intermediate financial institutions are the prime
source of construction financing, disintermediation has the effect of
raising construction costs.
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