Intermediation

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For the religious term, see Intercession

Intermediation involves the "matching" of lenders with savings to borrowers who need money by an agent or third party, such as a bank.[1]

If this matching is successful, the lender obtains a positive rate of return, the borrower receives a return for risk taking and entrepreneurship and the banker receives a return for making the successful match.[2] If the borrower's speculative play with the depositor's funds does not pay off, the depositor can lose the savings borrowed by the borrower and the bank can face significant losses on its loan portfolio.[3]

The skill of identifying potential successful new entrepreneurs who can take market share off competitors or develop whole new markets is one of the most vital (and intangible) skills any banking system can possess.[4]

References

  1. ↑ The Theory of Financial Intermediation, by Franklin Allen and Anthony M. Santomero
  2. ↑ The Theory of Financial Intermediation, by Franklin Allen and Anthony M. Santomero
  3. ↑ The Theory of Financial Intermediation, by Franklin Allen and Anthony M. Santomero
  4. ↑ The Theory of Financial Intermediation, by Franklin Allen and Anthony M. Santomero
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