In the best circumstances, the operation of financial markets is transparent to the macroeconomy. The financial system allocates credit efficiently to firms that invest in capital resources that improve the productivity of other inputs (for example, labor) and contribute to the growth of the economy. The financial system also offers households choices about how they allocate consumption over time.
Financial institutions can be viewed as reducing information asymmetries that impede borrowers’ access to credit, and they provide transaction services to borrowers. And by reducing the cost of external finance to firms generally, productivity gains in the financial sector can foster gains in a wide array of other industries as well.