Balance Sheet Impact of Loan Intermediation
Analyze the two scenarios described below. How does the introduction of the bank as an intermediary in Scenario 2 affect the final asset and liability positions on the personal balance sheets of Alex (the saver) and Ben (the borrower) compared to the direct loan in Scenario 1? Explain your reasoning.
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Figure 6.8: Combined Balance Sheets of Marco, Julia, and the Bank
An individual with surplus funds (a saver) agrees to lend 100 units of currency to an individual who needs funds (a borrower). Compare two methods for this transaction:
Method 1: The saver lends the 100 units directly to the borrower. Method 2: The saver deposits the 100 units in a bank, and the bank then lends 100 units to the borrower.
Which statement best analyzes the impact of these two methods on the initial financial positions of only the saver and the borrower?
Balance Sheet Impact of Loan Intermediation
When a loan is facilitated through a financial intermediary (like a bank) instead of being a direct agreement between a saver and a borrower, the saver's financial risk is eliminated because their asset is now a deposit with the bank rather than a direct claim on the borrower.
A saver lends 50 units of a resource to a borrower. Match each party's financial position to its correct description under two different scenarios: a direct (bilateral) loan and a loan facilitated by a bank (intermediated).