Financial intermediaries are those that, as their name indicates, act as a bridge in operations between the different market participants.
What are financial intermediaries
Financial intermediaries are understood as those companies whose task is to collect savings from families and companies and lend them to other families, companies or public administrations. (García-Durán, p.12)
Who are the financial intermediaries
There are a wide variety of financial intermediaries, but they can possibly be classified into three broad groups: banking, securities markets and insurance companies. (García-Durán, p.12)
Financial intermediaries are companies whose main business is to provide clients with certain financial products and services that cannot be obtained more efficiently through direct transaction in the securities markets. Among the types of intermediaries are banks, investment companies and insurance companies. Its products include checking accounts, loans, mortgages, mutual funds, and a wide range of insurance contracts. (Bodie and Merton, p.50)
Monetary and non-monetary and stock market financial intermediaries
Pussetto (p.52), quoting Levine, indicates that the functions of financial intermediaries in an economy, from a more general point of view, are:
- Produce ex ante information on potential investments and capital allocations Monitor investments and examine the quality of corporate governance after providing financing Facilitate commercialization, diversification and risk management Mobilize and combine savings Facilitate the exchange of goods and services.
And he adds that the simple inspection of these functions suggests, a priori, that the existence of a financial system is essential to guarantee the economic growth of a country. But surprisingly, the economic debate has not had its last word on it. At least in part, this is a problem of causality: it is not clear enough whether it is the economic system that benefits growth or whether, on the contrary, financial development is the result of economic growth. Although seemingly trivial, this problem is fundamental. Like any analysis of an economic nature, the importance of causality lies in its consequences in terms of economic policy. If the evidence concludes that financial systems are important for economic growth,then the design of a solid and reliable financial system would be desirable. On the contrary, this would not be necessary in the case in which the financial system is simply the product of the economic development achieved by a country.
Bibliography
- Bodie, Zvi and Merton, Robert C. Finance. Pearson Education, 2003 Hair, Alejandra. Financial globalization and liberalization and the Mexican stock market: from boom to crisis. Plaza and Valdes, 1999. Fabozzi, Frank J.; Modigliani, Franco y Ferri, Michael G. Markets and financial institutions. Pearson Education, 1996. García-Durán de Lara, José Antonio. Introduction to economics: Initiative and Wellbeing. Editorial Ariel, 2005. Pussetto, Lucas. Financial system and economic growth: An unsolved mystery. In: Palermo Business Review, No. 1, 2008.
