Role of Financial institutions
The basic role of financial institutions is to change the shape of money. What I mean by that is for instance:
- Size change : Collect small amounts of money from some people and lend big amounts of money to others.
- Term change : Collect money from some people for a long period and lend it to other people for very short periods of time.
- Payment schedule change : Collect money from some people regularly in order to give it to other people when rare events occur. (Insurances)
This role is very important and cannot be taken by individuals entering bilateral deals because two people never have the same constraints in terms of “shape” of the exchange.
posted by Walter @ 12:07 AM
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