Financial intermediaries are the institutions that sit between people with money to save and people who need to borrow or raise capital. Banks are the most familiar example, but the category also covers credit unions, insurance companies, pension funds, mutual funds, and investment banks. They do more than pass money along: they pool small deposits into large loans, absorb risks that individual savers cannot, and screen borrowers that individual lenders have no way to evaluate. Understanding how they work explains a lot, from the rate on your savings account to why so many federal agencies keep an eye on the industry.
The Two Main Types
The clearest way to sort intermediaries is by where they get their money. Depository institutions fund themselves with public deposits that customers can pull out on demand. Non-depository institutions rely on premiums, contributions, or investor money that arrives on fixed schedules. That single difference shapes how each type is regulated and how much risk it can absorb.
Depository Institutions
Commercial banks are the largest category. They hold checking and savings deposits, issue mortgages and business loans, and process the transactions that keep commerce moving. Savings and loan associations concentrate on residential mortgage lending. Credit unions are member-owned cooperatives serving people who share a common bond, such as an employer or a community.
Deposits at federally insured banks are protected up to $250,000 per depositor, per ownership category, per institution through the Federal Deposit Insurance Corporation.1Federal Deposit Insurance Corporation. Understanding Deposit Insurance Credit union deposits carry the same $250,000 protection through the National Credit Union Share Insurance Fund, which Congress established in 1970.2National Credit Union Administration. Share Insurance Coverage
Non-Depository Institutions
Insurance companies collect premiums, invest the pool, and pay out claims from it. Pension funds accept contributions over a career and invest them to fund retirement income decades later; they are among the largest institutional investors in the world. Mutual funds pool money from many investors to buy diversified portfolios of stocks, bonds, or other securities, giving small investors access to markets they could not enter alone. Investment banks help companies and governments raise capital by underwriting new securities and advise on mergers, acquisitions, and restructurings.
What Financial Intermediaries Actually Do
Size Transformation
No individual saver could fund a $300 million commercial real estate project. When an intermediary collects deposits from thousands of customers, the combined pool becomes large enough to finance loans of that scale. It works in the other direction too: a mutual fund breaks a portfolio holding billions in assets into $100 shares that retail investors can afford.
Maturity Transformation
Savers want their money quickly. Borrowers need years or decades to repay. A bank reconciles the mismatch by holding assets with staggered timelines, keeping enough cash on hand for withdrawals while the bulk of deposits fund long-term mortgages and business loans. It is one of the riskiest things intermediaries do. If too many depositors demand their money at once, the institution cannot liquidate long-term loans fast enough to pay everyone. That is what a bank run is.
Risk Transformation
Spreading lending across thousands of borrowers in different industries and regions absorbs the risk that any single loan defaults. An individual lending to one borrower faces total loss if that borrower fails. A bank lending to ten thousand borrowers can absorb scattered defaults without threatening depositors’ funds. Insurance companies do the same thing: one house fire is devastating for the homeowner but a predictable statistical event across a million policyholders.
Reducing Information Gaps
When you deposit money at a bank, you don’t investigate whether the bank’s borrowers can repay. The bank does that. Underwriters, credit analysts, and risk officers pull credit reports, verify income, and review collateral. Without intermediaries doing this screening, individual savers would have no practical way to assess a stranger’s ability to repay, and lending would be limited to people who already know and trust each other.
How They Make Money
The Interest Rate Spread
The foundational revenue model for depository institutions is straightforward: pay depositors a low rate, charge borrowers a higher one, keep the difference. As of early 2026, the national average rate on a standard savings account sits at roughly 0.39%, and a money market account averages about 0.56%.3Federal Deposit Insurance Corporation. National Rates and Rate Caps A 30-year fixed mortgage averages around 6.21%. That gap, called the net interest margin, funds the bank’s operations, absorbs loan losses, and generates profit.
Fees
Beyond the spread, intermediaries charge fees. Wire transfers are a common example, and there is no federal cap on what a bank can charge for one.4HelpWithMyBank.gov. How Much Can a Bank Charge for a Wire Transfer? Domestic wire fees at major banks typically run up to $30 for outgoing transfers, and international wires can cost $60 or more. Investment intermediaries charge management fees as a percentage of assets under management: robo-advisors generally between 0.20% and 0.35% annually, human advisors 0.50% to 1.00% or higher. Commissions on stock and ETF trades used to matter, though competitive pressure has driven them to zero at most major online firms.
What Duty They Owe You
Not all intermediaries owe you the same legal duty. The standard of care depends on what type of firm you are dealing with, and the difference matters when something goes wrong.
Pension Plan Fiduciaries
Under the Employee Retirement Income Security Act, anyone who exercises discretionary control over a pension plan or its assets is a fiduciary. The standard is strict. Fiduciaries must act solely in the interest of participants and beneficiaries, use the care and diligence of a prudent professional, diversify investments to minimize the risk of large losses, and follow plan documents when consistent with the statute.5Office of the Law Revision Counsel. 29 U.S. Code 1104 – Fiduciary Duties A fiduciary who breaches these duties can be held personally liable to restore losses, and a court can order removal.6U.S. Department of Labor. Fiduciary Responsibilities
Registered Investment Advisers
Investment advisers registered with the SEC owe a fiduciary duty rooted in the Investment Advisers Act of 1940. The SEC has interpreted that duty as covering both care and loyalty. In practice, an adviser must provide advice in the client’s best interest based on the client’s objectives, and must either eliminate conflicts of interest or fully disclose them so the client can give informed consent.7Securities and Exchange Commission. Commission Interpretation Regarding Standard of Conduct for Investment Advisers
Broker-Dealers
Broker-dealers operate under a different standard. Since 2020, the SEC’s Regulation Best Interest has required broker-dealers to act in a retail customer’s best interest when making a recommendation, without placing their own financial interests ahead of the customer’s.8Securities and Exchange Commission. Regulation Best Interest – The Broker-Dealer Standard of Conduct The standard cannot be met through disclosure alone; where conflicts exist, firms must mitigate or eliminate them. Reg BI is stronger than the older “suitability” standard but still differs from a full fiduciary duty. It applies at the time of a recommendation rather than as an ongoing obligation throughout the relationship.
Who Regulates Financial Intermediaries
Financial intermediaries operate under overlapping layers of federal regulation. Each agency has a distinct focus, and many institutions answer to several regulators at once.
The Federal Reserve
The Federal Reserve supervises bank holding companies and sets the rules for how depository institutions manage reserves. The Fed historically used reserve requirements as a monetary policy tool. Since March 2020, however, it has set reserve requirement ratios at zero percent for all depository institutions.9Federal Reserve. Reserve Requirements Banks still hold reserves voluntarily for liquidity, but the mandatory minimum is currently zero.
The FDIC
The Federal Deposit Insurance Corporation insures deposits at member banks up to $250,000 per depositor, per ownership category, per institution. The “per ownership category” detail matters. A single account, a joint account, and a retirement account at the same bank are each separately insured up to $250,000.10Federal Deposit Insurance Corporation. General Principles of Insurance Coverage The FDIC also examines banks for safety and soundness and manages the resolution process when a bank fails.
The Securities and Exchange Commission
The SEC regulates intermediaries in securities markets. The Securities Exchange Act of 1934 established the agency and gave it authority to register and oversee stock exchanges, broker-dealers, and self-regulatory organizations. The SEC can sanction, fine, or discipline market participants who violate federal securities laws, and it enforces the disclosure rules designed to protect investors from fraud.11U.S. Government Publishing Office. Securities Exchange Act of 1934
The Consumer Financial Protection Bureau
Created by Title X of the Dodd-Frank Act, the CFPB consolidates consumer protection authority that was previously scattered across seven federal agencies. It has exclusive enforcement power over nonbank financial companies offering consumer financial products, including mortgage companies, payday lenders, and private education lenders.12Consumer Financial Protection Bureau. Supervision The bureau examines these firms and can require reports to identify which ones need closer scrutiny.
FINRA
The Financial Industry Regulatory Authority is a not-for-profit self-regulatory organization that oversees broker-dealers. FINRA administers the licensing exams securities professionals must pass before selling investments, and it can fine, suspend, or bar individuals and firms that violate its rules.13FINRA. FINRA.org It also runs BrokerCheck, a public database where you can review a broker’s background, certifications, and disciplinary history before handing over money.
The Financial Stability Oversight Council
Dodd-Frank also created the Financial Stability Oversight Council, chaired by the Treasury Secretary, with authority to designate certain nonbank financial companies as systemically important. A company that receives that designation faces consolidated supervision by the Federal Reserve and enhanced prudential standards, including stress tests, capital planning requirements, and resolution planning.14U.S. Department of the Treasury. Designations The premise is simple. If an intermediary’s failure could destabilize the broader financial system, it should face stricter oversight before failure happens.
Anti-Money Laundering Rules Apply Across the Board
Federal law also requires intermediaries to watch for criminal misuse of the financial system under the Bank Secrecy Act. Before opening an account, a bank must collect at minimum a customer’s name, date of birth, address, and taxpayer identification number, and verify that information through documents or other means.15eCFR. 31 CFR 1020.220 – Customer Identification Program Institutions must file a Currency Transaction Report for every cash transaction over $10,000, and structuring deposits to stay below that line is itself a federal crime.16FFIEC BSA/AML InfoBase. Currency Transaction Reporting Suspicious activity triggers a separate report at a $5,000 threshold when a suspect can be identified and $25,000 otherwise.17FFIEC BSA/AML InfoBase. Suspicious Activity Reporting
Fintech Is Reshaping the Category
Some newer firms are becoming intermediaries themselves, and some are trying to remove intermediaries entirely. Peer-to-peer platforms connect borrowers directly with investors willing to fund their loans, and because the loan notes often qualify as securities, these platforms can face SEC and state regulation at the same time. Robo-advisors use algorithms to build and manage diversified portfolios for a fraction of what a human adviser charges. Decentralized finance protocols replicate lending and trading through smart contracts on blockchain networks, largely outside the traditional regulatory framework, which means the consumer protections that apply to banks and broker-dealers are mostly absent.
Why Intermediary Failures Matter
Financial intermediaries are deeply interconnected. When one fails, its obligations to other institutions can trigger a cascade. A bank that defaults on interbank loans puts stress on every counterparty counting on those payments, which can cause further defaults, which stresses still more institutions. This is systemic risk, and it is why governments treat major intermediary failures as emergencies rather than ordinary business closures. The 2008 failure of Lehman Brothers froze credit markets worldwide because counterparties across the system could not determine their own exposure. The FSOC designation process and the enhanced prudential standards that followed under Dodd-Frank were built to make that kind of cascade less likely the next time a major intermediary gets into serious trouble.