Financial intermediation involves institutions that channel surplus funds from economic agents to entities in need of financial resources, primarily categorized into deposit and credit intermediaries, contract-savings institutions, and investment intermediaries. These entities help manage liquidity, raise funds, and reduce credit risk for lenders while providing borrowers with access to larger loans and lower lending rates. The nature of financial intermediation varies across national markets, with different focuses on stock markets, banking, and project consultancy.

1. What is Financial Intermediation?
Financial Intermediation is institutions that accumulate surplus resources of
economic agents and provide them in the formof various kinds of debt
obligations to entities that havea shortageof financial resources.
Today, all operating financial Intermediationcanbe dividedintothree types,
depending on the specifics of the operations performed:
• Depositand credit financial intermediaries include commercial banks, savings
and loan associations, mutualsavings banks, postalsavings institutions, non-bank
credit institutions, microfinanceorganizations, building societies, credit unions,
and cooperatives. They manage the liquidity of their clients, organizemoney
transfers, raisefunds for deposits and providea variety of loan products,
minimizing transaction costs and risks.

2. • Insurancecompanies and pension funds belong to the contract-savings
institutions. They raise funds in the form of contributions under contracts
concluded between them and their clients.
• Investmentfinancialintermediaries assistclients in placing free funds in high-
yield financial instruments. Theseinclude financial companies, mutual funds,
hedge funds, general bank management funds (OFBMs), mortgagebanks, and
loan brokers.
Also, a number of institutions operate on the financial market that provides
services differentfrom the above, but also contribute to the transformation of
free cash into investments. These include professionalparticipants in the
securities market (brokers, dealers, depositories, trustees, etc.), factoring and
forfeiting companies, leasing companies, stock, and currency exchanges.

3. The prevalence of this or that type of projectconsultancy in the national financial
markets determines the specifics of the transactions carried out on them. Thus,
the financial marketof the USA, Canada, Japan is distinguished by the
predominant development of the stock market and a high degree of investment
attractiveness, while banking intermediation prevails in the financial markets of
Germany, Switzerland, and China. The Russian Federation is also characterized by
the predominantdevelopment of projectconsultancy of the deposit and credit
type.
Benefits of project consultancy for lenders
• Financial intermediaries reducecredit risk (the risk of non-repaymentof debt)
by diversifying investments by types of financial instruments, by time, and
between creditors.
• Financial intermediaries are looking for reliable borrowers.

4. Benefits financial intermediationfor borrowers
• Financial intermediaries are looking for acceptable lenders.
• A decreasein credit risk with the participation of financial intermediaries leads
to a decrease in lending rates.
• Financial intermediaries satisfy the demand of borrowers for largeloans, having
connections with many lenders.
• Financial Intermediation can help turn short-termloans into long-term.
Financial intermediation differs significantly frombroker-dealer activity. The
peculiarity of the latter is that brokers and dealers do not create their own
requirements and obligations, but act on the power of attorney of clients,
receiving income in the formof a commission (brokers) or thedifference in the
rates of purchaseand sale (dealers). Financial intermediaries operate in the
market in a completely different way - on their own behalf and at their own
expense, creating their own obligations and their own requirements. Therefore,
their profit is formed as the difference between the income fromthe placement
of accumulated funds and the costs associated with their attraction.