Financial intermediary concept
They are institutions specialized in mediation between economic units that want to save or invest their funds and those units that want to borrow funds. Funds are normally raised in the short term (through current accounts, deposits, etc.) and are transferred in the long term (granting of loans, acquisition of shares, bonds, etc.).
It may be the case that someone who needs money borrows it directly from someone they know without the need for an entity but, in general, financial intermediaries facilitate this task, since they put a multitude of participants in contact and also offer guarantees to both parties: savers and borrowers.
For carrying out this function, intermediaries receive a benefit derived from the intermediation margin, which is derived from the difference between the interest rate they offer to savers and the one they ask for from borrowers. Although this is the basic function of these intermediaries, as they have been developed over time, the type of tasks they perform are more numerous and complex.
Financial intermediaries are banks, savings banks, credit cooperatives, etc.
Functions of financial intermediaries
Financial intermediaries provide two types of services:
-They allow to reduce the risk of the different assets through the diversification of the portfolio and move so many funds that they can buy assets of any nominal value that individuals could not individually;
-Marry the needs of lenders and borrowers, capturing the resources of short-term savers, and transferring them to a longer term.
Types of financial intermediaries
We can speak of two types of financial intermediaries: banking and non-banking.
Bank intermediaries: Made up of private banks and savings banks. From the financial point of view, the traditional services of banking intermediaries are deposit-taking and the offer of loans and credits, although little by little they have been expanding their functions through other services for which they usually charge bank commissions.
Non-banking intermediaries: Within the non-banking financial entities we find a wide variety that issue assets that are not money and carry out activities that go beyond the merely banking. However, on many occasions, these functions are also carried out by the bank itself, either directly or through companies in its group. For example, it is very common for each bank or savings bank to have its own insurance company, its investment funds or its own pension funds.
Would:
Insurance companies: issue a specific financial asset: insurance policies, which allows them to offer certain compensation in the event that the insured event occurs. These companies have to set up substantial reserves, which they invest in other financial intermediaries (private and public fixed-income securities).
Official Credit Institute (ICO): acts under the conditions of the Government, granting aid to economic sectors in difficulty and financing infrastructures or sectors that are considered a priority. The resources are obtained from budget allocations or by issuing fixed-income securities.
Private pension funds: their mission is to complement or supplement the pensions that Social Security pays after retirement. To this end, associates make periodic contributions during their active working lives.
Mortgage credit companies: they grant mortgage loans, for which they obtain resources through time deposits or the issuance of mortgage securities guaranteed by their credit portfolio (mortgage bonds) or by a specific loan (mortgage bonds).
Securities investment companies and funds: these are groups of investors who join together to gain better access to the Stock Market. Investment funds have a similar purpose to that of companies, but they differ from them in that they usually take the form of assets without their own legal personality. To capture their resources, they issue certificates of participation representing part of the assets, the value of which fluctuates according to market prices.
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