How do banks mediate between those who have surplus money and those who need money?
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bank mediates between those who have surplus money and those who need money by allowing both to open accounts with it. ... Those with surplus money are encouraged to invest with the bank and are paid a certain rate of interest for the same. Those who need loans are required to pay an interest on their loans.
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The banks use the major portion of the deposits to extend loans to those who need money, charging them slightly higher interest than what they pay to the depositors. This difference is the major source of income for banks. In this way banks mediate between those who have surplus money and those who need money.
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