BANKS

AND OTHER FINANCIAL

INTERMEDIARIES
By: John Paulo H. Poblete
FINANCIAL INTERMEDIARY

 A financial intermediary is an institution or individual that serves as a

middleman among diverse parties to facilitate financial transactions.

 A financial intermediary is typically an institution that facilitates the

channeling of funds between lenders and borrowers indirectly. As such,
financial intermediaries channel funds from people who have surplus
capital (savers) to those who require liquid funds to carry out a desired
activity (investors).
Functions Performed by Financial
Intermediaries

• 1. Creditors provide a line of credit to qualified clients and

collect the premiums of debt instruments such as loans for
financing homes, education, auto, credit cards, small
businesses, and personal needs.

• 2. Risk transformation

• 3. Convenience denomination
Advantages Financial Intermediaries

1. Cost advantage over direct lending/borrowing

2. Market failure protection: The conflicting needs of lenders and

borrowers are reconciled, preventingmarket failure.
Disadvantages of Financial Intermediaries

• Lack of Transparency

• Inadequate attention to social and environmental concerns

Types of Financial Intermediaries

 Banks
• A bank is a financial institution that accepts deposits from the public and channels those deposit
into lending activities. Banks primarily provide financial services to customers while enriching
investors.

 Savings Banks
 A savings bank is a financial institution whose primary purpose is accepting savings deposits
 and paying interest on those deposits.

 Credit Unions
 A credit union, a type of financial institution similar to a commercial bank, is a member-owned
financial cooperative, controlled by its members and operated on a not-for-profit basis. Credit
unions generally provide services to members similar to retail banks, including 
deposit accounts, provision of credit, and other financial services.
Types of Financial Intermediaries

 Financial Advisers or Brokers
 Such intermediaries may or may not offer a financial product but advises investors to help them achieve their financial
objectives. These financial advisors usually undergo special training.

 Insurance Companies
 A company, which may be for-profit, non-profit or government-owned, that sells the promise to pay for certain 
expenses in exchange for a regular fee, called a premium. 

 Pension Funds
 A pension fund, also known as a superannuation fund in some countries, is any plan, fund, or scheme which provides 
retirement income.

 Stock Exchanges
 A stock exchange does not own shares. Instead, it acts as a market where stock buyers connect with stock sellers.
Banks

• The basic function of a Bank is to collect deposits from the public and

lend those deposits for the development of Agriculture, Industry, Trade
and Commerce. Bank pays interest at lower rates to the depositors and
receives interests on loans and advances from them at higher rates.

• Banks play an important role in financial stability and the economy of a

country, most jurisdictions exercise a high degree of regulation over
banks. 
Banks

 Commercial Roles

1. Issuance of Bank Notes

2. Processing of Payments by way of telegraphic transfer, Electronic Funds Transfer
at Point of Sale (EFTPOS), internet banking or other means
3. Issuing bank drafts
4. Accepting money on term deposit
5. Lending money by way of overdraft, installment loan or otherwise
6. Safekeeping of documents and other items in safety deposit boxes
7. Currency change
Banks

 Economic Functions

1. Issue money, in the form of banknotes and current accounts subject to cheque or
payment at the customer’s order.
2. Netting and settlement of payments
3. Credit intermediation
4. Credit quality improvement
5. Maturity transformation
Banks

Types of Banks

 Retail Banking
 Business Banking
 Corporate Banking
 Private Banking
 Investment Banking
 Central Banking
Thank You!