Economies of scale are cost advantages that arise from increasing the production or

distribution of goods and services. For financial intermediaries, such as banks and
investment firms, these economies of scale are fundamental to their existence and
operation, driven by several key factors. First and foremost, there is the element of cost-
efficiency. Financial intermediaries can leverage economies of scale by spreading their
fixed costs over a higher volume of transactions .Furthermore, diversification is a crucial
aspect. Financial intermediaries can pool the funds of multiple investors and use them to
invest in a diverse portfolio of assets, thereby spreading risk and providing a broader
range of investment options for their clients.