Legal Definitions - financial intermediary

A financial intermediary is a type of financial institution that facilitates the transfer of funds between different parties. These parties can include borrowers and lenders, buyers and sellers, and investors and savers. The intermediary acts as a middleman, helping to connect these parties and make transactions possible.

• Commercial banks
• Investment banks
• Credit unions
• Insurance companies
• Mutual funds

For example, let's say you want to buy a house. You need a loan to finance the purchase, but you don't have enough money saved up to pay for it outright. A commercial bank can act as a financial intermediary by providing you with a mortgage loan. The bank takes your deposit and lends it to someone else who needs it, such as a business owner who wants to expand their operations. This way, the bank is able to earn interest on the loan and make a profit, while also helping you achieve your goal of buying a house.

Another example of a financial intermediary is a mutual fund. If you want to invest in the stock market but don't have the time or expertise to pick individual stocks, you can invest in a mutual fund instead. The mutual fund pools money from many different investors and uses it to buy a diversified portfolio of stocks. This way, you can benefit from the expertise of professional fund managers and reduce your risk by spreading your investments across many different companies.