Conceptual links Intermediaries can promote growth by increasing the fraction of resources society saves or improving the way society allocates savings. Consider investments in firms. Large research, legal, and organizational costs are involved. These costs can include evaluating the firm, coordinating financing for the firm if more than one investor is involved, and monitoring managers. So, by researching many firms and allocating credit to the best ones, intermediaries can improve the allocation of society's resources.
Intermediaries can also diversify risks and exploit economies of scale.
For example, a firm may want to fund a large project with high expected returns, but the investment may require a large lump-sum capital outlay. Such profitable opportunities can often go unexploited without intermediaries to mobilize and allocate savings. Intermediaries can initiate the creation and transformation of firms' activities. They also provide payment services. In addition to improving resource allocation, financial intermediaries stimulate individuals to save more.