This chapter provides an overview of the key characteristics and functions of the financial system, which consists of financial institutions, financial markets, and financial regulators. The financial system is examined in terms of the critical role of trust as its foundation, its pro-cyclicality, its systemic nature, susceptibility to herding behavior, opaqueness in certain transactions, and the importance of regulation. The fragility of financial institutions and the factors contributing to potential risks are explored. Transformational functions performed by financial institutions, including maturity transformation, transformation of denomination, currency transformation, liquidity transformation, and risk transformation, are analyzed within the scope of fragility. Furthermore, the essential roles of financial institutions in money and liquidity creation are investigated (credit creation, shadow banking). Finally, the chapter examines the role of financial intermediation in promoting sustainability, drawing on the Sustainable Development Goals (SDGs) and environmental, social, and governance (ESG) principles.