Introduction There exists an important relationship between economic growth and financial intermediation. The banking sector and capital market together can play a vital role in enhancing economic growth. It has been observed that well-developed financial systems give the required impetus to economies to reach their potential since they allow financial institutions to identify profitable opportunities and exploit them through intermediaries by funneling investment funds from investors to those opportunities. (Michael Tiel, July 2001). Main text There can be three types of financial intermediaries: investment bankers, dealers and brokers. When companies or even governments for that matter want to sell securities to generate capital they need financial intermediaries. The investors can also re-sell the securities to other investors. Financial intermediaries also facilitate this process. The financial intermediaries thus ensure that the financial system works smoothly and makes it possible for surplus and deficit economic units to interact and exchange funds for mutual benefit. (Gallagher and Andrew, 2003) Many informal financial institutions make use of methods to serve wide-ranging segments of society that lack access to banks (or just simply facilitate access to banks). The utility of financial intermediation is evident when an organization wants to go public; i.e. offer stocks on the capital markets through IPO (Initial Public Offering). It is usually the investment bankers that handle all the details associated with the issuance and pricing of the stock and marketing it to the public. (Gallagher and Andrew, 2003) The intermediaries bring together the two parties by borrowing funds from lenders and lending them to borrowers so that both parties find the transaction more favorable than if they traded directly with each other. Financial intermediaries such as banks, investment companies, and mutual funds e.t.c collect resources from various small investors and then lend or invest them. Let us look at how the financial intermediaries benefit from the situation. According to (Mishkin and Eakins, 2006) financial intermediaries can significantly reduce transaction costs associated with the time and money spent in performing financial transactions. The exchange of goods or services or assets is a good example. The intermediaries due to their large size and expertise are able to take advantage of economies of scale. The low transaction costs allow these institutions to offer liquidity services as it is simpler to sell financial instruments to raise cash. Another important factor is that financial intermediaries are able to greatly reduce the potential risks by sharing the risks among various investors and thus achieving high levels of diversification due to the varied portfolios. This not only makes investments less risky but also means profits for the intermediary itself as they gain profits on the difference between the returns and the payments they make. Another one of financial intermediaries’ roles in the financial system is the flow of information (from one party to the other and vice versa). Information is essential to understanding the need for regulation as it has a bearing on the sense of balance that any market needs to remain in a stable situation. Due to the f