The previous column discussed several important roles of banks in a society. These roles are universal and apply to banks operating in developed or developing economies alike. Financial intermediation is yet another essential role of banks. In this crucial function, banks mobilise the savings of households, businesses and governments and channel these to those who need to invest in business or purchase large consumer items such as a car.
Banks are not the only financial institutions which perform the function of intermediation, however. This can also be done by finance companies, credit unions, mutual funds and others. Furthermore, financial institutions are not the only agents in an economy that intermediate between those who have an excess of funds (savers) and those who have a shortage (investors and buyers). Financial markets can also perform this task.
