Visibility Gap Drives Intermediation

When most savers cannot 'see through' a firm’s underlying projects and risks, intermediaries (firms, banks) add value by pooling information, concentrating risk for equity holders, and transforming long-term risky claims into short-term low-risk liabilities for households. This information/visibility gap — not just taxes or bankruptcy costs — explains maturity transformation, liquidity provision, and why regulation of intermediaries matters. — Framing intermediation as a response to an investor visibility problem reframes debates over deposit insurance, capital requirements, and who should bear risk in the economy.