Theoretical basics of financial intermediation by commercial banks

The paper focuses on financial intermediation as the cornerstone of modern banking operations. The role of banks in economic development is shown on the basis of an agent-oriented model of interaction of economic agents. The agent-based modeling helps to explore different scenarios of behavior within a unified system and choose the most appropriate tools for control and regulation in order to achieve the goals. Despite the negative impact of commission fees, due to financial intermediation a number of realized business projects have been increased in the economy. The author formulates main features of financial intermediation such as transformation of risks and maturity of assets, a scale of activity and specialization, monitoring and encouragement of borrowers. Owing to effective ways of capital formation and its further transformation into the loans, banks have a significant impact on the economic development: economic agents, who have savings, may not benefit from the risk diversification and a scale of the investment volume, while entrepreneurs cannot alone attract outside funding without significant accompanying costs. In case of poor legal environment and inefficient protection of property rights, banks more effectively perform the functions of enforcement of contracts. Banking regulations can not only protect the interests of its customers, but also reduce the social costs of possible misconduct of financial intermediaries.