Credit analysis and underwriting are the keys to managing credit risk. Trade and consumer credit, which are often based on the differential access to credit markets of trading partners, illustrate the minimal specific capital required for entry into the financial intermediation business. Minimal natural barriers to entry explain why industry output adjustments are typically accompanied by entry and exit of firms, and also why artificial barriers are often introduced as a substitute for natural barriers. Financial intermediaries process risk and information. Qualitative asset transformation implies some kind of risk processing.
Brokers can, in principle, perform their function without risk.
Diversification, specialization of labor, and underwriting and monitoring skills are keys to the production of intermediation services. Information reusability can help us to understand the bank customer relationship as well as asset specialization. The introduction of financial intermediaries will affect interest rate spreads predictably, but their effect on interest rate levels is less than clear.