Intermediation
Encyclopedia
Intermediation involves the "matching" of lenders with savings to borrowers who need money by an agent or third party, such as a bank
.
If this matching is successful, the lender obtains a positive rate of return, the borrower receives a return for risk taking and entrepreneur
ship and the bank
er receives a return for making the successful match. If the borrower's speculative play with the depositor
's funds does not pay off, the depositor's funds are safe because the bank bears the risk and in the U.S.A. deposits are insured lose the savings borrowed by the borrower and the bank can face significant losses on its loan portfolio.
The skill of identifying potential successful new entrepreneur
s who can take market share off competitors or develop whole new markets is one of the most vital (and intangible) skills any banking system can possess.
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
.
If this matching is successful, the lender obtains a positive rate of return, the borrower receives a return for risk taking and entrepreneur
Entrepreneur
An entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...
ship and the bank
Bank
A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...
er receives a return for making the successful match. If the borrower's speculative play with the depositor
Deposit account
A deposit account is a current account, savings account, or other type of bank account, at a banking institution that allows money to be deposited and withdrawn by the account holder. These transactions are recorded on the bank's books, and the resulting balance is recorded as a liability for the...
's funds does not pay off, the depositor's funds are safe because the bank bears the risk and in the U.S.A. deposits are insured lose the savings borrowed by the borrower and the bank can face significant losses on its loan portfolio.
The skill of identifying potential successful new entrepreneur
Entrepreneur
An entrepreneur is an owner or manager of a business enterprise who makes money through risk and initiative.The term was originally a loanword from French and was first defined by the Irish-French economist Richard Cantillon. Entrepreneur in English is a term applied to a person who is willing to...
s who can take market share off competitors or develop whole new markets is one of the most vital (and intangible) skills any banking system can possess.