BANKING AND FINANCIAL INTERMEDIARY

Banking and Financial Intermediary

Banking and Financial Intermediary

Costs and Benefits of Intermediation in the Banking System

Researchers have divided the costs and benefits of intermediation in the banking system of different ways that the division of costs and benefits which is linked to market conditions and general economy and risks especially which is related to the institution itself. And the department of costs and benefits to others intermediation in the banking system they have come from the nature of that facility or institution related factors affect and are affected products market, and financial risks that lead to potential losses and financial variables are in associated with the system of borrowing (or so-called financial leveraging) where in a financial institution cannot meet its obligations from its assets. The costs and benefits of intermediation in the banking system can be divided into the following that may be exposed to financial institutions; generally into two groups:

Financial risks;

Operational risk.

Financial risks

These risks are related to the management of assets and liabilities, and what can be expected from the most important financial risks follows:

Credit risk

In relation to costs and benefits of intermediation in the banking system, linked to the other party (the client) and the fulfillment of its obligations on time; it may be failure to meet the customer (debtor) its obligations to the bank on time, return to inability to fulfill the desire to meet or not (Ehrlich & Fanelli, 2004, 34).

Risk Liquidity

It is the lack of adequate liquidity for operational requirements or to meet the obligations of the bank in a timely manner. The result from poor management of liquidity in the bank and the difficult access to liquidity at a reasonable cost, own risk funding liquidity, or cannot sell assets and a sale of assets.

In particular reference to costs and benefits of intermediation in the banking system,The liquidity problem arises that there is usually a trade-off between liquidity and profitability and varies between showing only access and demand for liquid, any bank rests obey the control of sources of funds from deposits, but it must be pointed out that the bank can control the uses of these funds and using them and this fact is one of the main roads to prevent the risk of liquidity as we shall see when we were to manage liquidity risk (Harley & Edenborough, 1997, 15). And liquidity risk may be more severe in banks due to the nature of banks and for reasons including:

The banks cannot borrow an interest rate to cover their needs for liquidity when necessary.

Cannot sell debt initially only nominal value.

And which fails to central banks (so far at least) the role of lender of last resort for banks, as is the case with the conventional banks. It must be diversity here is that central banks work on the development of tools and means to act as lender of last resort for banks with the means apply law and banks can take advantage of ...