Difference Between Central Bank And Financial Intermediaries

Central bank and financial intermediaries are strongly interrelated and it is important in our financial system. Yet, each of these are playing different roles together contribute to the financial system in order to manage the global economy. Hence, we shall look into the differences between central bank and financial intermediaries by focusing the area of their roles, characteristics and the purposes.

Central bank is a financial institution established in most of countries as responsible for the monetary policy to supervise and maintaining the financial system and the economy of the country itself such as regulating the size of a nation’s money supply and banks, the liquidity and cost of credit, and the currency foreign exchange value (Blue

Not only that, it plays as a role of pooling the resources of small savers because of it giving huge amount of loans, hence it gather the money from numerous of savers that save small sums to loan to the borrower. For examples, a borrower apply for a RM 100,000 car loan from the bank then bank approved the loan by using the depositors money and charged the borrower loan interest as profit for the bank as well as giving interest to depositors so that there are more depositors deposit the money to the bank. For banks also having safekeeping, accounting, and payment mechanisms for resources for customers, which are allow the depositors to keep the money in account with interest giving to customers and all transactions occurred will be recorded and customers can use of debit/ATM cards and checks as payment mechanisms, which ease the customers life (The Herald, 2013). It provides liquidity at anytime to the customers through ATM machines, credit cards or debit cards, checking accounts and cheque. It does occurs situation like customer overdraft, which called as short-term outflows with higher interest rates charged.

An act that increase the gross domestic product of the nation by boosting up the economic enable investors to have higher monthly income, expanding their businesses and increase the quality of household living lifestyle. For example, a business man apply RM1,000,000 from bank to expand his business to run more production, after he expand his could produce more products and have more sales income. It also provides capital to individuals or business that facing financial crisis by giving loan to them. What if the bank didn’t give loan to them, whole bunch of them might facing bankruptcy, which slow down the nation’s economy cycle. Human tend to make mistakes but if there is a second chance they could do it better, bank is the opportunity for them to fight again. Basically, most of the big companies having debts from banks too and the company are still operating gaining profit. Yet, bank did not giving loan blindly to everyone the bank will have some credit ranking process to ensure the applicants are qualified and potential to return the loan in future, this act solve issue that too much borrowers can’t afford to pay off their debts will bring down the economic of the nation into financial crisis such as year 2008 financial sub-prime crisis.