Banks as Financial Intermediaries, Essay Example

A common link to savers and borrowers is performed through intermediaries like that of banks. In performance of these duties the banks need to consider their responsibilities. The investors experience a number of distinct benefits by the Banks as Financial intermediaries. For example: (i) They can reduce the transaction costs of both investment and saving (ii) the short term saving option can increase the liquidity of the investor (iii) the risk for the investor is reduced as they do not have to incur the costs of credit checks of the borrowers (iv) It enables any losses to be spread out where a borrower defaults.

The Banks have a duty to invest the money from depositors and try to optimize the return on investment or profit on the money borrowed.  As shares may both increase and decrease in value, the Banks attempt to spread the risk by investing in a diverse portfolio. An example of this being mutual funds.  The banks must also try to protect the monies invested from the consequences of significant inflation. When this happened in the USA in the 1970’s, people responded by spending their money instead of saving or investing it.  Those who chose to invest re-oriented by trying to find inflationary hedges like Gold and Real Estate.

Banks have spent an enormous amount of money on customer relationship management software in an effort to streamline costs and improve services.  Reliance upon technology cannot, however, abdicate the need for customer service and face-to-face contact. This decline in personal financial services management has continued to erode customer confidence in banking relationships.  The aspect of outsourcing online banking services to overseas countries like India has further frustrated this situation.  Many people feel the loss of being able to speak to the local Bank Branch Manager and feel annoyed that they have been given a technological solution without consultation or approval.

In conclusion, people generally look for three main items from their banks (1) Security over monies invested (ii) Appropriate returns on monies invested (iii) customer service in terms of managing their monies and providing expert financial advice.