Financial Intermediaries

Financial Intermediaries
Financial Intermediaries are important because they find money for businesses and people to use. Most people and businesses do not enter financial markets alone but use intermediaries to be the middleman. Commercial banks are the financial intermediaries used most frequently, but thrift institutions, investment companies, and to some extent insurance companies are all important financial intermediaries. When people make deposits into their bank, the bank then in turn uses the money to make loans; the bank loans money to people to buy houses, for student loans, for businesses and to all others who need to borrow money. With out the financial intermediary, a person could loan out money to borrowers directly and possibly get a higher return, but at a much greater risk.

Financial intermediaries provide two important advantages to people with the money. Lending through a financial intermediary is less risky be...