Financial intermediary
Banks and other intermediaries can reduce search and transaction costs, assess borrowers, pool funds and transform maturity, denomination and risk characteristics. These services can make finance more accessible than a direct transaction between each saver and borrower. Transformation does not eliminate risk: funding long-term illiquid assets with short-term liabilities can create liquidity exposure. Intermediaries differ in how they are funded and regulated, so not all provide identical guarantees or services. Fintech can alter distribution, processing and market access without removing the need to assess underlying risks.
Worked example
A bank pools many small deposits and makes a larger business loan. Depositors do not each negotiate directly with the borrower, but the bank must manage credit losses and the possibility that depositors demand cash before the loan is repaid.
Common mistake
Treating risk pooling or maturity transformation as proof that the intermediary cannot face a liquidity or credit problem.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | AFM | Supporting | September 2026–June 2027 |
| ACCA | FM | Direct | September 2026–June 2027 |