Why is it important for the financial system to be efficient?

Why is it important for the financial system to be efficient? 

Ans. It is important for a financial system to be efficient to minimize the cost of financial intermediation and to increase the mobilization of funds from surplus parties to needy parties. Efficiency in quantitative terms can be assessed from Ratio between total cost of financial intermediation and total assets and interest rate spread which is the difference between lending rates and deposit rates. In an efficient market, there is flow of information. The difference between purchase price and sale price of securities which is called bid-ask spread will be used for efficiency. Intermediation costs include operating costs, taxes, loan loss provisions, net profits etc. interest rate spreads remain high even if service providers are efficient because of need of building loan-loss provisions or charge a risk premium on lending to high risk borrowers.