... The end users of the system are people and firms whose desire is to lend and to borrow.' (Howells, P & Bain, K 1994) Therefore a financial system is a form of intermediary bringing together potential borrowers and potential lenders. Potential borrowers and lenders have three options to choose from in order to get what they want, i.e. assets for lenders, such as a bank deposit, and liabilities for borrowers, such as loans. The first option is to deal with one another directly, however this choice is very costly as it would be hard to find someone willing to lend money to a complete stranger, for example £10,000, as this is very risky. The lender would have to put great trust in that person to repay the full amount to them, or charge such a high interest rate to cover any potential damage that it would probably be unacceptable to ...

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