What is the definition of Intermediation?

Intermediation refers to the act of "match-making" investors and savers with borrowers. Borrowers aim to obtain money by way of a loan so that they can finance their company's operations or projects. Meanwhile, investors and savers are looking for a good place to put their money so that it may gain a good return. Intermediation may also involve a third party or agent, such as a bank or a depository institution.

When the intermediation is successful, the third party (the bank) gets a marginal return ("commission") for successfully matching the borrower with the lender. However, if the intermediation is unsuccessful, this may mean that the borrower failed to pay off the loan, the saver or depositor can lose his investment and the bank can experience an adverse effect to its loan portfolio.

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