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The Role of Financial Intermediaries


Discuss abou the Critical Accounting Research and Neoliberalism.

Financial intermediaries are a part of the financial system and plays a major role in operation of the same. The help in channelizing the funds from areas that have surplus funds to areas that are deficient in the same. They act as a link between the lenders and the borrowers. They play a major role in connecting the ties between the two that makes the entire process of money lending and rotation easy and seamless.  They are the ones who indulge in speculation activities and often advice their clients on how they can make effective utilization of their funds. Till today banks are the biggest intermediaries in the system and have been doing this business of money lending and saving since ages (Abbott & Kantor, 2017). The main role of the intermediaries is conversion of one kind of asset into another. Mainly they are involved in three kinds of transformations

  • Transformation in terms of maturity – In case of these financial intermediaries it is said that they match up the maturity of their liabilities with their assets and mostly it is a case of mismatch, where traditional intermediaries like banks matches long term longs with short term deposits so in this way they can manipulate the maturity zones of their assets and end up making money in between(Alexander, 2016).
  • Transformation in terms of size – In case of these financial intermediaries they often match long term loans with short term deposits so that leads to larger amount wanted by the borrower and that is supplemented by smaller amounts from the lenders. They collect smaller amounts from people who want to deposit their money and in the end transfer them to people who want large sum of money.
  • Risk transformation – This is by far the largest factor that governs this business of lending and borrowing. The level of risk classifies these intermediaries and by far banks are the largest risk bearers. People who have these intermediaries as liability in cases where they lend their money, should think of ways where they have protected themselves in cases of loss. There are various ways in which these intermediaries manage the risk and that alone makes them different from each other. There are several ways in which banks does the same by diversifying the assets and investing the same in different areas, by channelizing the risks to different portfolios, by minimizing the level of risk involved based on individual transactions(Chariri, 2017).

The financial intermediaries help people in many other ways apart from channelizing their funds through dedicated and secured routes and connecting them to genuine lenders and buyers, they also help in reducing the overall transaction cost that is involved with management of funds. They do the same through several ways, by developing networks and information system, by using secured and tested routes for fund transformation, by reducing the information cost that might have been there in case of absence of these intermediaries. Overall, they play a very important role in fund management and helps in the growth of the equity by investing the same in different portfolios (Chron, 2017).

In recent times, there has been many such occasions in which these financial intermediaries have played an important role in solving the issues faced by people in arrangement of funds and providing them with necessary solution. Many investment banks like world banks, RBI etc have played an important role in solving the issues faced by companies and individuals and other banks and helped them in seamless rotation of money, they act as lenders and depositories and made sure that the money market was always liquid and there was a growth of marketable securities.

Nowadays mutual funds have become a very popular way by which people can invest in their money and avail many benefits. Few mutual fund issuers of the world include, Oberweis China Opportunities Fund (OBCHX), Third Avenue Real Estate Value Fund (TAREX), Matthews Pacific Tiger Fund (MAPTX) etc. These have been actively providing mutual fund services to people in different corners of the world and have been generating a lot of revenue. Mutual funds basically pool in the money deposited and invest them into different avenue through secured channels and then the profit is distributed to the depositories after availing some commission for the issuing agents. It is said to be more secure form of money transactions in comparison to banks (Anon., 2017).

In cases where companies merge, demerge, amalgamate, these financial intermediaries provides a lot of help by planning the overall process and providing them with the necessary funds that they would require. So, in this way they act as financial planners and solves the issues that might crop up in such situations. These intermediaries have a lot of knowledge, about the areas where money should be invested to get more returns and all the routes are already tested by them. Both in national and international sector they have played a major role in changing the ways people dealt with money lending and borrowing and has changed the entire system making the same extremely easy for people to understand and follow.

Mutual Funds and Banking Services

People in villages who are not that educated and have less knowledge on how to handle their finances, can avail banking services that are there specially for such people. In this way they can save their money and make sure that there is no wrong utilization of the same in the hands of the money lenders in such villages. So, this is the reform that was very much required during those times to make sure that people were getting their dues and were becoming more aware about how they can manage their funds effectively (Maynard, 2017). In all these the financial intermediaries have played a major role, the various banking regulations and rules that have been formed have made the entire process very easy and secured.

But the point to be noted what is the future of these intermediaries in times to come and how far are they successful in changing the functioning of the financial market and helping the people who are involved in the same. Since the time they have been operating there have been several changes and this has affected the overall scope of these intermediaries. They are functioning well, but it is very dicey on what the future holds given the advancement in technology and related aspects (Chron, 2017).

Over the period the relevance of financial intermediaries has declined a lot and there are many factors responsible for the same. The decline in the financial assets held by the banks is no indication of the decline in the banking industry, it just indicates that people have directly started to invest their money in different sectors and do not depend on these intermediaries to help them in any regard. There are many aspect that is responsible for the success and failure of this theory.The most important factors that have led to their decline are

Reduction in the total cost advantages in case of acquiring funds – The people started to look for opportunities that would provide them with higher interest rates rather than investing in banks and for the same they pooled out their money from banks and started investing themselves. Also, there were a lot of changes in the banking regulations that was responsible for such changes and banks underwent a transformation, because of which many users switched to different areas(Sikka & Willmott, 2010).

Reduction in income advantage in using the funds- The growth in the information technologies and development of multiple channels made it easier for the banks to directly deploy the funds to the public, this reduced the cost that they needed to pay off the intermediaries. It also favored the process of securitization, where in they converted the liquid assets into marketable securities, so in a way they reduced the bridges between the people who wanted to invest their money and the ones who wanted to borrow the money. Not only banks but many financial institutions were now able to analyze the loan position, take decisions on where to invest their money and which fields to follow and thus the banks lost their advantages. So overall it can be seen that there were several factors that played an important role in assessing the growth of the intermediaries and fall of the same. Previously they had the knowledge which made them different from others but as time passed and growth in different sectors occurs, people started taking risks themselves, so banks were no more objectified as risk reducing and managing bodies. So, all these led to a decrease in the overall importance of banks (Vieira, et al., 2017).

Financial Intermediaries as Planners

It can be said that as time will progress this gap between the borrowers and the lenders will get narrowed and with advent in technology it would become easier for people to invest their funds in different portfolios. The future of financial intermediators, is not that dark given the fact that the amount of knowledge that they possess in this filed is immense, but later as time will progress and days will change and people will become more informative, they will prefer rotating their own money rather than taking anybody’s help in the same. The financial intermediaries should try to make sure that they upgrade their services and try to better of themselves so that people feel good to avail their services and make the best of it.

Recently I got an opportunity to be appointed as a banker in one of the biggest private banking corporations in Australia, The ANZ (Australia and New Zealand banking group).  The bank was founded in 1835 and have been in operation since then, the bank has more than 46, 000 staff working for it and it is headquarter in Sydney. The bank provides many banking and financial services to corporates, retail sector, high net worth, small business groups, commercial, institutional companies etc. It has been operating in more than 30 markets around the world and has been said to generate a lot of revenue through its operations in the banking sector. The total reported net assets of the bank in 2016 was US$726 billion, with a total income of US$4,106 million.

In the private banking sector, the bank provides many services to its customers. Private banking basically refers to banking and financial services that banks provides to high net worth individuals or the ones that have huge amount of investments to be done. It refers to providing services to the customers on a more private and a personal basis, and there is more individual approach that is followed in the same. It is a subset of wealth management and a large part of many banking services that top banks provides to its customers. In case of ANZ there are few specific services that the bank provides to its high net worth customers through its private banking department like

Providing Proprietary Products – The bank provides such products to the customer to make sure that competitors do not sell them similar products, these are customized as per the needs of the people and helps in protecting the information of these high net worth individuals (Dichev, 2017). Privacy is very important for them and they are often subjected to many law suits given the kind of investments that they do, hence keeping it confidential is very important for them. So ANZ basically modifies the product as per the need of the individual and one to one service is provided to them, so that more personal connect is developed with the customer and their needs and demands can be easily acknowledged. So they appoint private bankers that can handle the need of these high net worth customers on one to one basis.

The Future of Financial Intermediaries

Discounted Services – Since these individuals brings in large amount of business for the banks they often provide discounted services to the customers. Many services like wealth management, tax calculation, tax management etc. are provided at a lower cost than usual (White, et al., 2018).This is done basically to attract the customers and keep them in. Many clients that deals in import and export will get significant foreign exchange discount. So, for the customers it is very much economical if they invest their funds through these private banking services. People who are involved in real estate also get a lot of benefits as the bank process their transaction easily in a less time and that helps them to save a lot of transaction cost (Chiapello, 2017).

Consultancy Services – The bank provides consultancy services for individuals that have high net worth, so that they get clear idea on how they can manage their funds effectively and these consultancy services are provided on a more personal basis, where one to one interactions occurs, consultants are given few customers that they need to manage and they have all the details in regards to that customers. In cases where the customers faces any issues they can directly contact the consultant. In this way a personal relationship is developed and services that are offered are more on an individual basis. The bank provides consultancy services in many sectors like wealth management, risk aversion, cost anlsysis etc.

Portfolio Management – These individuals have large amount of assets to manage and that belongs to diversified sectors, so they avail services of such banks to help them in the process of portfolio structuring and management. Banks provide such services at a moderate fee and that is generally linked to the total amount of portfolio. These portfolios are kept under continuous scrutiny and timely reviews happens to find any discrepancies. Most of the management is done by investment specialists who can draw upon the portfolio on a group level and provide accurate advices to the individuals.

Risk Management – Fund generation and investment both has certain risk element that is involved in it. Risk management is a part of portfolio management, where the banks helps the clients in understanding the uncertainties that is involved with funds and investments and provide them with the necessary help in management of the same. This is the most important function of banks and they need to make sure that the level of risk involved in the portfolios is as less as possible. This is also important for individual securities that the level of risk involved must be as low as possible.

Wealth Management – The banks need to provide necessary service for management of the wealth and since these high net worth people have too much wealth, they seek the services to these banks to provide them with effective solutions on how they can channelize their resources into more meaningful marketable securities. Bank employs experts who can handle the wealth and provide necessary advice to the people on how they can manage their wealth and generate ample amount of profit that would help in keeping the business running.

Factors Responsible for the Decline of Financial Intermediaries

Generation of funds- the main aim of investment is to generate revenue and by using the services of the banks the main aim would be to generate as much funds as possible. Thus, the aim of the bank should to invest the money of the individuals in such a manner that it would generate them maximum revenue. It can be done through effective market research and taking help from experts so that flow of fund is on a consistent basis and in times when changes are required the flow of funds must be changed (Lane & Ferretti, 2017).

Event marketing – Most of the banks depend on traditional methods of client acquisition that includes referrals, as per which customers who are satisfied with the services of the bank can refer them to other people. But this is a very basic method of customer acquisition and bank can now try new methods like event marketing, in which the bank can arrange for events at financial exhibitions and banking exhibitions and can put forward their policies and services and can also give discount to attract customers. People who come at these events will get attracted if the banking projections are good enough (Grundy, et al., 2017).

Social media – Nowadays there has been huge growth in the use of social media platforms for marketing and advertisements. Companies all around the world are making use of these social media for brand promotion. Banks can also make use of the same so that they can attract more customers, they can promote their business on internet and people can avail their services through them. The reach of internet is huge and it will be a great way of brand promotion and development.

Giving discounted services – In this competitive world, people are always looking for options that can help them in getting the best services at as less cost as possible. So in that case if the bank provides its premium services at a lower cost, customers will automatically get attracted and that will help in increasing the overall business of the company (Delone & Mclean, 2004). All this will help the bank in getting more customers rather than the just traditional referral people who avail the banking services through networks.


From the above analysis it can be said that there are several ways by which the business can be made better and more clients can be attracted by using new technologies and following new trends. All these help the banking sector in getting more clients.


Abbott, M. & Kantor, A., 2017. Fair Value Measurement and Mandated Accounting Changes: The Case of the Victorian Rail Track Corporation. Australian accounting Review.

Alexander, F., 2016. The Changing Face of Accountability. The Journal of Higher Education, 71(4), pp. 411-431.

Anon., 2017. Explaining auditors’ propensity to issue going-concern opinions in Australia after the global financial crisis. Accunting and Finance, pp. Carson,E;Fargher,N;Zhang,Y;.


Chiapello, E., 2017. Critical accounting research and neoliberalism. Critical Perspectives on Accounting, Volume 43, pp. 47-64.

Chron, 2017. five-common-features-internal-control-system-business. [Online]
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Delone, W. & Mclean, E., 2004. Measuring e-Commerce Success: Applying the DeLone & McLean Information Systems Success Model. International Journal of Electronic Commerce, 9(1).

Dichev, I., 2017. On the conceptual foundations of financial reporting. Accounting and Business Research, 47(6), pp. 617-632.

Grundy, Q., Held, F. & Bero, L., 2017. A Social Network Analysis of the Financial Links Backing Health and Fitness Apps. American Journal of Public Health.

Lane, P. & Ferretti, G., 2017. International Financial Integration in the Aftermath of the Global Financial Crisis. IMF working paper No. 17/115.

Maynard, J., 2017. Financial accounting reporting and analysis. second ed. United Kingdom: Oxford University Press.

Sikka, P. & Willmott, H., 2010. The dark side of transfer pricing: Its role in tax avoidance and wealth. Critical Perspectives on Accounting, pp. 342-356.

Vieira, R., O’Dwyer, B. & Schneider, R., 2017. Aligning Strategy and Performance Management Systems. SAGE Journals, 30(1).

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