Financial Intermediary

Transaction fees, the middleman, and promissory notes.


Because banks hold reserves in amounts that are less than the amounts of their deposit liabilities, and because the deposit liabilities are considered money in their own right, fractional-reserve banking permits the money supply to grow beyond the amount of the underlying base money originally created by the central bank.

A financial intermediary is an institution or individual that serves as a middleman among diverse parties in order to facilitate financial transactions. Common types include commercial banks, investment banks, stockbrokers, pooled investment funds, and stock exchanges. Financial intermediaries reallocate otherwise uninvested capital to productive enterprises through a variety of debt, equity, or hybrid stakeholding structures.

Through the process of financial intermediation, certain assets or liabilities are transformed into different assets or liabilities.  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).

A financial intermediary is typically an institution that facilitates the channeling of funds between lenders and borrowers indirectly.  That is, savers (lenders) give funds to an intermediary institution (such as a bank), and that institution gives those funds to spenders (borrowers). This may be in the form of loans or mortgages. Alternatively, they may lend the money directly via the financial markets, and eliminate the financial intermediary, which is known as financial disintermediation.

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Important Financial Companies

Ripple Banks

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