Financial intermediaries like banks and insurance companies help connect people who have money to invest with those who need to borrow money. They do this by screening, monitoring, and diversifying investments, as well as providing liquidity services. However, this system can be risky, as it relies on the stability of these intermediaries. The government steps in to reduce this risk by offering credit guarantees and liquidity support. But this can also lead to excessive risk-taking by the intermediaries. Over time, financial innovation has led to a more complex system of intermediation involving multiple institutions.