Banks act as financial intermediaries by bringing together depositors and borrowers. Depositors provide funds to banks through primary securities like deposits, and banks provide these funds to borrowers through secondary securities like loans. This allows for indirect finance between depositors and borrowers. As intermediaries, banks perform functions like risk transformation and matching deposit sizes with loan sizes. They also generate income by consolidating deposits and issuing loans. Common types of financial intermediaries include commercial banks, thrift banks, and depository institutions like savings banks.

1. Bank as
a Financial
Intermediaries

2. What is Financial Intermediaries
?
 It is a Financial Institution that
acts as the bridge between
investors or savers and
borrowers or security issuers
which issue their own financial
instrument called secondary
instrument.

3. Investors or Savers or a
Depositor.
(Surplus units or SUs)

4. Primary Securities
A bank gets deposits from the depositor.
The depositor is the lender and the bank is the
borrower.
Original borrowers(Bank) issue PRIMARY
SECURITIES
Lender

5. DIRECT FINANCE
•The relationship or a
transaction between
the bank and the
depositor is Direct
finance.

6. Borrowers or Security issuers.
(Deficit units or DUs)

7. Secondary Securities
The transaction between the bank and
the borrower called “ Secondary
Securities”
Loan

8. INDIRECT FINANCE
The borrowers from the
bank now have an
indirect relationship to
the depositor.

9. Primary Securities
Surplus units or SUs
Direct finance
Secondary Securities
Deficit units or DUs
Indirect finance

10. The Relationship
(Transaction)
depositor borrower
Financial Intermediary

11. Financial Intermediaries 3 major
functions
 Maturity of insurance policy, reach
the end of its term and so become
payable.

12.  Risk transformation. Converting
riskly investment into relatively
risk-free ones.
 Convenience denomination.
Matching small deposits with
large loans and large deposits
with small loans.

13. Bank as a Financial
Intermediaries
 Can create secondary securities that
it can sell. Such as:
*Funds
*Investments Banks
*Entities

14.  Can pool deposits to have a bigger
amount available to be sold as a
secondary security.
 Can simply lend accumulated deposits to
borrowsers as a loan.
 Banks get deposit from the depositors.
 Bank that consolidates deposits and
uses funds to transform them into loans.

15. Examples of Financial
Intermediaries in Banks

16. Depository Institution
 Refers to financial institution that
accepts deposits from surplus.
 Issues checking or current account,
savings and time deposits and help
depositions with money market
placement.
 Current or checking account can be
withdrawn by issueing a check.

17. Depository Institution includes:
Commercial Banks
 Grant only short-term loans.
 Originally extended to merchants for the
transport of their goods in both the
domestic.
Ex:
*Ordinary Bank
*Expanded Commercial/Universal
Bank.

18. Thrift Banks
a. Savings and mortgage banks.
b. Private development banks.
c. Savings and loans associations.
d. Microfinance thrift banks.
e. Credit unions.

19. Other Functions of a Bank as a
Financial Intermediaries.
 Provide safekeeping and accounting
services, as well as access to the
payment system.
 Supplying liquidity by correcting saver’s
balances directly into means of
whenever needed.
 Provide ways to diversity risks.
 Collecting and processing information
costs.

20. Advantages and
Disadvantages of Financial
Intermediaries in Banks.

21. Advantages
 Cost advantages over direct lending/
borrowing
 Market failure protection the conflicting
needs of lenders and borrowers and
reconciled, preventing market failure.

22. Disadvantages
 Lack of tranparency.
 Inadequate attentions to social and
environmental concerns.
 A failure to link directly to proven
developmental impacts..