and a borrower who receives a loan from that bank. When a bank serves as a financial intermediary, unlike the

situation with a couple on a blind date, the saver and the borrower never meet. In fact, it is not even possible to

make direct connections between those who deposit funds in banks and those who borrow from banks,

because all deposited funds end up in one big pool, which the financial institution then lends out.
414 17 • Financial Markets

Figure 17.3 illustrates the position of banks as a financial intermediary, with a pattern of deposits flowing into

a bank and loans flowing out, and then repayment of the loans flowing back to the bank, with interest

payments for the original savers.

FIGURE 17.3 Banks as Financial Intermediaries Banks are a financial intermediary because they stand between

savers and borrowers. Savers place deposits with banks, and then receive interest payments and withdraw money.
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