Financial institutions play a crucial role in market equilibrium from "summary" of Business Cycles and Equilibrium by Fischer Black
Financial institutions are key players in the functioning of financial markets. They provide the necessary infrastructure for the smooth operation of markets, facilitating the allocation of capital and resources. Without financial institutions, markets would struggle to reach equilibrium as there would be limited access to funding and investment opportunities. One of the primary roles of financial institutions is to act as intermediaries between savers and borrowers. They channel funds from individuals and businesses with surplus capital to those in need of financing. This process helps maintain liquidity in the market and ensures that capital is allocated efficiently. Moreover, financial institutions play a crucial role in risk management. By offering a variety of financial products such as insurance, derivatives, and hedging instruments, they help market pa...
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