Financial intermediation facilitates efficient allocation of capital from "summary" of The Economics of Money, Banking and Financial Markets, eBook, Global Edition by Frederic S. Mishkin
Financial intermediation plays a crucial role in the economy by connecting savers and borrowers. When individuals have excess funds that they want to invest, they can deposit their money in financial institutions such as banks. These institutions then lend out these funds to businesses and individuals who need capital for investment or consumption purposes. In this way, financial intermediaries help to channel funds from those who have a surplus to those who have a deficit, facilitating the efficient allocation of capital in the economy. Without financial intermediaries, the process of transferring funds from savers to borrowers would be much more complex and inefficient. Savers would have to search for borrowers on their own, evaluate the creditworthiness of potential borrowers, and monitor the performance of their investments. On the other h...
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