What is Financial Intermediation?

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What is Financial Intermediation?
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• Financial Intermediation is institutions that
  accumulate surplus resources of economic agents
  and provide them in the form of various kinds of
  debt obligations to entities that have a shortage
  of financial resources.
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• Today, all operating financial Intermediation can
  be divided into three types, depending on the
  specifics of the operations performed
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• Deposit and credit financial intermediaries
  include commercial banks, savings and loan
  associations, mutual savings banks, postal
  savings institutions, non-bank credit
  institutions, microfinance organizations,
  building societies, credit unions, and
  cooperatives. They manage the liquidity of their
  clients, organize money transfers, raise funds
  for deposits and provide a variety of loan
  products, minimizing transaction costs and risks.

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• Insurance companies and pension funds belong to
  the contract-savings institutions. They raise
  funds in the form of contributions under
  contracts concluded between them and their
  clients.
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• Investment financial intermediaries assist
  clients in placing free funds in high-yield
  financial instruments. These include financial
  companies, mutual funds, hedge funds, general
  bank management funds (OFBMs), mortgage banks,
  and loan brokers.
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• Also, a number of institutions operate on the
  financial market that provides services different
  from the above, but also contribute to the
  transformation of free cash into investments.
  These include professional participants in the
  securities market (brokers, dealers,
  depositories, trustees, etc.), factoring and
  forfeiting companies, leasing companies, stock,
  and currency exchanges.

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• The prevalence of this or that type of project
  consultancy in the national financial markets
  determines the specifics of the transactions
  carried out on them. Thus, the financial market
  of the USA, Canada, Japan is distinguished by the
  predominant development of the stock market and a
  high degree of investment attractiveness, while
  banking intermediation prevails in the financial
  markets of Germany, Switzerland, and China. The
  Russian Federation is also characterized by the
  predominant development of project consultancy of
  the deposit and credit type.
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• Benefits of project consultancy for lenders
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• Financial intermediaries reduce credit risk
  (the risk of non-repayment of debt) by
  diversifying investments by types of financial
  instruments, by time, and between creditors.
  Financial intermediaries are looking for reliable
  borrowers.

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• Benefits financial intermediation for borrowers
• Financial intermediaries are looking for
  acceptable lenders. A decrease in credit risk
  with the participation of financial
  intermediaries leads to a decrease in lending
  rates. Financial intermediaries satisfy the
  demand of borrowers for large loans, having
  connections with many lenders. Financial
  Intermediation can help turn short-term loans
  into long-term.

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• Financial intermediation differs significantly
  from broker-dealer activity. The peculiarity of
  the latter is that brokers and dealers do not
  create their own requirements and obligations,
  but act on the power of attorney of clients,
  receiving income in the form of a commission
  (brokers) or the difference in the rates of
  purchase and sale (dealers). Financial
  intermediaries operate in the market in a
  completely different way - on their own behalf
  and at their own expense, creating their own
  obligations and their own requirements.
  Therefore, their profit is formed as the
  difference between the income from the placement
  of accumulated funds and the costs associated
  with their attraction.

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