A financial intermediary is an institution that obtains funds from savers or other providers of finance and makes them available to parties requiring funds. Banks are the most familiar example: deposits appear as liabilities on their balance sheets, while loans to households and firms are recorded as assets. Because the intermediary stands between the original providers and users of capital, the claims on either side need not have the same amount, maturity or risk. Financial intermediation therefore allows borrowing and lending to take place without direct contractual relationships between each saver and borrower.
Source: European Central Bank (ECB) (source). This glossary entry is an independently worded adaptation of the cited information.