In a world of competition and perfect information there would be no reason for the existence of financial intermediaries. Individuals could take their savings and invest them in projects and in firms with returns that are optimal given the preferences and time horizons of individuals. The markets might specialize in trading contracts that would exchange funds under all conceivable contingencies. Such markets would provide an efficient diversification of risks. This is the hypothesis of efficient markets, where prices reflect all available information.
For Becsi and Wang (1997) The key point to explain why there are intermediaries is the introduction of market imperfections or frictions. This means relaxing the assumptions of perfect competition or information and frictionless market, and show how financial intermediaries can improve the results obtained by the market. When the initial conditions are less than perfect, economic exchanges are expensive and if they are sufficiently the same guys can not occur. Financial intermediaries, especially banks, make such exchanges possible, reducing or minimizing the effect of frictions in the market, reducing transaction costs.
Both adverse selection problems as the moral hazard have important effects on the credit market. The first implication is to make the banks the only agent capable of analyzing the available projects and decide who can receive the resources. According to Boot (2000), the reason for the banks is exactly mitigate the problems of asymmetric information. What an interesting approach Posted by Boot, is to understand the bank not only as a sales agent, but a producer of information through the relationship with the debtors have a key role in the efficient allocation of resources in the credit market.
As Cosci (1993) one of the main consequences of asymmetric information is that the problems of adverse selection and moral hazard justifying the existence of banks as financial intermediaries. The presence of adverse selection may induce some institutions that specialize in acquiring information about the risk of projects seeking funds in the credit market. This situation allows the creditor to more easily distinguish between good and bad credit risks, reducing somewhat the degree of information asymmetry in the market. Banks have an important advantage in acquiring information because they manage the accounts of firms and therefore have no information that are unavailable to other agents in the market. The presence of moral hazard also induces certain institutions that specialize in monitoring activity. The bank has a big advantage in collecting information on the outcome of investment projects financed, as he is able to monitor the development of the firms through the banking relationship.
For Spence (1974), the bank to lend, purchase a resource in the future with money today, while the debtor purchase money today with their ability or willingness to return the resource in the future. It is as if the bank buys a lottery ticket, since he can not directly observe the ability of individuals to return the borrowed resource. The decision to lend or not the action is grounded in the amount of information gathered by the bank on the real conditions of payment of that debtor.
Considering the problems of information asymmetry present in financial markets and the existence of costs associated with the contract between the direct surplus agents and deficit, these explanations may be important to the role of banks as major players in financial intermediation activity. Actually second Thakor (1996) the existence of asymmetric information provides the main explanation for the existence of financial intermediaries in the economy. Access to information is inherently linked to relationship banking, providing many advantages for banks effecting transactions for credit.
In general, the intermediaries can be considered economic agents who buy goods or services for resale or simply helping buyers and sellers (individuals or surplus and deficit in the case of financial intermediation) to meet and transact. If, however, we consider the hypothesis of the existence of information asymmetry in transactions, we find what can be termed a micro foundations for the existence of the intermediary process in the markets.
In most economic transactions, the individuals involved have asymmetric information. In a transaction of buying and selling a particular product, for example, sellers do not know the characteristics of potential customers, and these, in many situations, do not know with certainty the characteristics of the product to be purchased, an intermediary can help solve these problems by collecting, processing and offering information, reducing the aggregate cost of the transaction as a whole. It is finally an activity that can be seen as a way to capture gains from transactions considering the existence of asymmetric information between individuals.
Spence (1974) proposes a discussion on the role of employment agencies in the labor market, which has the function of selecting the best candidates for the plaintiffs to employees. We could adapt the model proposed by Spence to the credit market, where the bank has the function of selecting the best investment projects to receive the resources raised from those investors (surplus staff).
Actually it is for banks to organize the market that is formed by entrepreneurs who have projects but no resources to accomplish them and savers who provide the resources to be lent. The banking is renowned for bringing together the staff in the quest for better allocation of resources possible.
The banks have the advantage of being the only institution equipped to separate between good and more projects that require resources, through their ability to conduct credit analysis.
In markets characterized by asymmetric information becomes essential to select projects between higher and lower risk so that possible losses are avoided, ie, a creditor (banks) with greater ability to gather information can easily distinguish between high and low risk, thereby increasing their expected utility.
To the extent that banks are able to identify good projects, your earnings will also grow, resulting in more investment in information production, which in turn results in increased efficiency in the selection process between projects.

Bibliography:
BECS, Zsolt and WANG, Pliny. Financial Development and Growth. Atlanta Federal Reserve Bank Economic Review vol. 82 (4), 1997, p. 46-62.

Boot, Arnoud WA ... Relationship Banking: What Do We Know? Journal of Financial intermediation. vol. 9, p. 7-25, 2000.

COSCO, Stefania. Asymmetric Information and Credit Rationing. Vermont: Dartmouth Publishing Company Limited, 1993.

SPENCE, Michael. Market Signalling: Informational Transfer in Hiring and Related Screening Processes. London, England: Harvard University Press. 1974.

Thakor, A.. Capital Requirement, Monetary Policy and Agregate Bank Lending: Theory and Empirical Evidence. Journal of Finance, v. 51, p. 279-324.1996.

By Alexsandro Rebello Jag December 12, 2008.
alex@venturacorporate.com.br
www.venturacorporate.com.br