How Do Banks Help The Financial Intermediaries In Business?


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Tariq Habib Profile
Tariq Habib answered
Bank money and many other financial services are today provided by financial intermediaries, which are institutions like commercial banks that take deposits or funds from one group and lend these funds to other groups. For example, financial intermediaries accept checking deposits from households and firms and then lend these funds out to other households and businesses for a variety of purposes.

The largest class of financial intermediaries comprises commercial banks, institutions that contain most of the nation's checking accounts or checkable deposits. Other important categories are savings banks, life insurance companies, pension funds, and money market mutual funds. Although, in the middle of 1993, all such intermediaries had a total of $11.8 trillion of assets and liabilities.

In what follows we will focus on commercial banks, or banks for short. We do so because these institutions are the main source of checking accounts or the bank money component of checking deposits.

Financial institutions transfer funds from lenders to borrowers. I doing this, they create financial assets like checking and savings account. But from a macroeconomic vantage point the most important asset is bank money or checking accounts, primarily provided by commercial banks.

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