The purpose of a financial institution such as a bank or credit union is to act as an intermediary between savers and borrowers. Here's why:
1. **Intermediary Role**: Financial institutions play a crucial role in the economy by connecting those who have excess funds (savers) with those who need funds (borrowers). This intermediation function allows for efficient allocation of capital in the economy.
2. **Accept Deposits**: Banks and credit unions accept deposits from individuals and businesses as savings or checking accounts. These deposits serve as a source of funds that can be used for lending to borrowers.
3. **Provide Loans**: Financial institutions provide various types of loans to individuals and businesses, such as mortgages, personal loans, and business loans. By lending out the funds deposited by savers, they help borrowers access capital to finance projects, purchases, or investments.
4. **Facilitate Transactions**: Banks and credit unions also facilitate everyday financial transactions, such as processing payments, transferring funds, issuing debit and credit cards, and providing other financial services to customers.
5. **Ensure Financial Stability**: Financial institutions play a key role in maintaining the stability of the financial system by managing risks, complying with regulations, and safeguarding deposits through measures like deposit insurance.
In summary, financial institutions like banks and credit unions act as intermediaries between savers and borrowers, accepting deposits from savers and providing loans to borrowers while offering a range of financial services to facilitate transactions and promote economic growth.
