Financial intermediation is the process by which financial institutions, such as banks and credit unions, act as intermediaries between savers and borrowers. These institutions collect funds from individuals or businesses that have excess money and lend it to those who need capital for various purposes, such as buying a home or starting a business. This helps facilitate economic activity by ensuring that money flows efficiently from those who have it to those who need it. By pooling resources, financial intermediaries can also provide services like risk assessment and diversification, which can lower the cost of borrowing. They play a crucial role in the economy by promoting stability and growth, as they help allocate resources where they are most needed. Examples of financial intermediaries include commercial banks, investment banks, and mutual funds.