financial institution, such as a commercial bank or savings and loan association, that accepts deposits from the public and makes loans to those needing credit. By acting as a middleman between cash surplus units in the economy (savers) and deficit spending units (borrowers), a financial intermediary makes it possible for borrowers to tap into the vast pool of wealth in federally insured deposits-accounting for more than half the financial assets held by all financial service companies-in banks and other depository financial institutions. The movement of capital from surplus units through financial institutions to deficit units seeking bank credit is an indirect form of financing known as intermediation-consumers are net suppliers of funds, whereas business and government are net borrowers. Abank gives its depositors a claim against itself, meaning that the depositor has recourse against the bank (and, if the bank fails, the deposit insurance fund protecting insured deposits), but has no claim against the borrower who takes out a bank loan.
commercial bank, savings and loan association, mutual savings bank, credit union, or other intermediary that smooths the flow of funds between savings surplus units, which are individuals and businesses that save, and savings deficit units, which are individuals and businesses that need credit.
commercial bank, savings and loan, mutual savings bank, credit union, or other "middleman" that smooths the flow of funds between "savings surplus units" and "savings deficit units." In an economy viewed as three sectors-households, businesses, and government-a savings surplus unit is one where income exceeds consumption; a savings deficit unit is one where current expenditures exceed current income and external sources must be called upon to make up the difference. As a whole, households are savings surplus units, whereas businesses and governments are savings deficit units. Financial intermediaries redistribute savings into productive uses and, in the process, serve two other important functions: By making savers infinitesimally small "shareholders" in huge pools of capital, which in turn are loaned out to a wide number and variety of borrowers, the intermediaries provide both diversification of risk and liquidity to the individual saver.
a firm, such as a bank or savings and loan association, which performs the function of collecting deposits from individuals and investing them in loans and other securities. Also includes credit unions and mutual savings banks.
Example: First National Bank serves as a financial intermediary by taking in deposits and placing them in mortgage loans and various securities. In doing so, the bank links individual investors with demanders of credit and the financial markets.
