chapter  7
22 Pages

The microeconomics of banking

Like any other business, financial intermediaries have sales, administration, building costs, electricity bills, accounts payable, and office supplies expenses. What makes these businesses different from most others is that the product sold is money. This is true for commercial banks, insurance companies, and investment banks alike. These firms sell services also, but these services are tied to the storing and investing of money in order to make revenue. Financial intermediaries take profits from financial leverage, or in the form of commission as a percent of investor revenue made on a transaction, or both. It is important to view the financial intermediary, especially banks, like any other firm.