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Borrower and lenders in financial intermediation

Financial institutions like banks perform as intermediaries. They lend their savings of depositors to final borrowers, charging more interest to borrowers than they pay to depositors, who are the eventual providers of loans. How does it decrease the transactions costs incurred while making private savings obtainable to borrowers?

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Without such financial institutions a borrower would require to know someone who required lending the same amount he wanted to borrow within similar time frame. A financial institution reduces transaction costs by fundamentally matching the wants of borrowers and lenders.

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