An Overview of the Canadian Financial-Services Sector: Banking Industry
What is a financial intermediary? A financial intermediary is an organization that raises money from investors and provides financing for individuals, companies and other organizations. Intermediaries are a stop on the road between savings and real investment. Mutual funds and pension funds are two important classes of intermediaries. A financial institution usually suggests a more complicated intermediary doing more than just pooling and investing savings. Banks and insurance companies are good examples.
A bank is where you can borrow money only if you can prove you don¡¯t need it. To some extent, this joke is more truth than fiction. While banking has a profound effect on our lives, influencing the availability of jobs, the cost of living, and our savings for the future, there is still much confusion about exactly a bank is because banking today is a quite different industry than in the past. A bank can be defined in terms of (1) the economic functions it serves, (2) the services it offers its customers, or (3) the legal basis for its existence.
Many Different Roles Banks Play in the Economy
The financial system of markets and institutions does more than simply transform savings into investment. It also provides a variety of supporting services essential to modern living. The modern bank has to adopt new roles to remain competitive and responsive to public needs. They include
(1) Intermediation role: transforming savings received primarily from households into credit (loans) for business firms and others in order to make investments in new buildings, equipment and other goods.
(2) Payments role: carrying out payments for goods and services ...