Banks as Financial Intermediaries

Most savers have too little money to lend directly to a business, and no way of checking whether the borrower is sound. Most borrowers need more than any one saver has. A bank solves both problems by pooling many small deposits into a fund it can lend in large amounts, and by doing the work of judging who is worth lending to.

Money goes out to savers as withdrawals and interest payments, and comes back from borrowers as loan repayments with interest. The gap between the interest a bank charges borrowers and the interest it pays savers is where it earns its living. The slider spreads the three circles apart or brings them together.