Bank: Acting as Financial Intermediaries, Essay Example

In acting as financial intermediaries, there are particulars of savers or borrows that must be considered by the banks before they offer financial assistance.  However, the particulars considered do not tally for the borrowers and savers. There is much expected from borrowers compared to savers.

The borrower should satisfy himself/herself that the borrowed money is to be invested in a way to made profits at the end of the duration. The purpose of the money and the statements are to be considered by the bank and should be well stated. When the reasons are vague, the bank would not give the loans but seek for more clarification. The duration of borrowing is yet another factor. Normally, the long-term borrowers are given higher priorities. The security of the money is yet another factor.  The past performance as well as profitability of the business must be also be considered. The borrowers who have not shown expansion/profitability in the recent years are given less attention. The businesses (with less profitability) businesses might close down and the banks run at loss. The other information banks would require in loaning the status of their working capitals. The other factors are vested interest, business performance history and time ofrefund. Banks would not lend money to business with poor past performance as it is risky. The business that will take longer time with the money resulting to more interest would be preferred. Their interests/returns are always higher than the short-term borrowers. Equity is also to be looked at. High equity indicates that there is low possibility that the business might fail. When equity is high, the busines is considered as able to repay the loan due.

However, less is expected from the saves. They are credit and so through saving, the bank obtains funds in running its businesses. Saving is normally open to every one as it is less risky on bank’s side.