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One defining tasks of a bank is financial intermediation. Please describe what financial intermediation is and...

One defining tasks of a bank is financial intermediation. Please describe what financial intermediation is and explain how it benefits society.

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Financial intermediation is where in the financial institutions in this case the banks connect the borrowers and those who save money channelizing the excess money into productive means. A bank is a financial intermediator in the sense that the people with excess cash deposit money in to the bank to earn interest and in order to pay the depositors interest, the bank lends money to those who are in need of cash for an interest. The difference between the interest paid and the interest earned is the profit for the bank. Banks are an important tool to mobilize savings and keep the money in rotation in an economy. When banks lend the deposits collected, it is a vicious circle of economic growth for the society at large. Money is either borrowed for personal needs or business use. If it is for personal needs, then the money is spent on goods or services which in turn increases their and thereby making manufacturing more products or more services leading to higher employment. Same is true for business, they borrow loans and invest in activities which again create employment and the demand and more employment cycle continues. Also, banks help create a financial trust between two parties unknown to each and help broker between parties with similar financial needs.

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