Role Of Banks Of The Economy

The fact that banks control 97% of the world's money supply makes them a vital institution. Banks are the engine of our modern financial system and a source for economic growth. The bank's ability to create credit can have destructive effects; the Great Depression of 1929 and the Great Recession of 2008. In both cases, banks spurred on an asset bubble through overextending credit to aid the purchase of assets. The result was an economic collapse that wiped out wealth and reduced credit creation which stalled productive investments. The lessons of the two great economic collapse support the notion proposed by the author, that bank credit for transactions that do not contribute to the economy should be restricted.

The importance of a development bank lies in spreading the spirit of development finance whereby entrepreneurs learn to invest in real fixed assets.

The banking industry has over the years evolved from simple to large and complex organization. They have grown from one street building into having multiple branches some of which are international. Their clients range from individual and institutions to governments and other banks. Banks do not manufacture physical things. Their work is simply services for money (Koch & MacDonald 2010). Such services include storing, lending and managing money. All people and institutions, as well as governments, need money to operate accordingly.

The Federal Reserve, Bureau of Labor Statistics, Department of Labor, Department of Commerce and Treasury Department play crucial roles in the value and availability of money in the USA economy. First, the Federal Reserve is the central bank of the United States. It is run by a Board of Governors appointed by the president and serves as a bank to banks. It performs five general functions to promote the effective operation of the U.S. economy. One, it conducts the nation's monetary policy to promote maximum employment, stable prices, and moderate long-term interest rates in the U.S. economy. Second, it promotes the stability of the financial system and seeks to minimize and contain systemic risks through active monitoring and engagement in the

Lending institutions have been around since the late 1700’s. Banks are establishments that are authorized by the government to accept deposits, pay interest on deposits, clear checks, make loans, act as an intermediary in financial transactions and provide other financial services to customers.

• Promote sustainable growth by supervising banks and other financial institutions to ensure the soundness of the nation’s financial system.

Financial markets are crucial to promoting greater economic efficiency by channeling funds from people who do not have a productive use for them to those who do. Well functioning financial markets are a key factor in producing high economic growth, and poorly performing financial markets, vice versa. Financial markets and intermediaries have the basic function of getting people together by moving funds from those who have a surplus of funds to those who have a shortage of funds.

The banking industry builds and sustains Financial relationships with its consumers of all sizes to supply Financial products and services to stimulate economic growth. The industry participants produced a variety of services from savings accounts to home and business loans mortgages checking accounts and

I think the primary benefit of banking, of financial institutions in general, is the information they bring to the table for lending out money that most of us just don't have, that most of us would find too expensive to get. The story that's usually told about the beginning of fractional reserve banking is told about ancient goldsmiths. Goldsmiths stored precious metals in their vaults and people came to them to store precious metals on their account and eventually the goldsmiths realized, you know, if I lent this gold out and put it out there in the community as some sort of an investment, then I could made a profit and return the gold to the vault before anyone notices. I think one of the reasons the goldsmith story is such a main attraction, especially with students, is because there's a common assumption that when you put money into a bank, it sits in that vault. Of course, you know that you're being paid interest to put your money in that bank, and that interest comes from somewhere. You know that, when you think about it, the bank is investing that money for you, and from the profits of those

The overall development of an economy is a major factor that has significant impacts on the development of the economy's financial markets. Since well-functioning financial systems offer good and easily accessible information, they lower the costs of transaction. This in turn enhances resource allocation and strengthens economic growth. The financial services industry consists of various systems such as stock markets and banking systems that enhance growth and help in poverty reduction. However, commercial banks tend to dominate the financial system during low levels of economic development while stock markets become more active and effective during periods of high levels of economic development ("Financial Sector", n.d.). The other important systems in the financial services industry include sound macroeconomic policies, shareholder protection, and good legal systems.

Banks are the key to our growth. Banks allow us to grow because they have as we say imaginary money. Banks are allowed to loan ten dollars for every dollar they actually

Banking system and the Financial Institutions play very significant role in the economy. First and foremost is in the form of catering to the need of credit for all the sections of society. The modern economies in the world have developed primarily by making best use of the credit availability in their systems. An efficient banking system must cater to the needs of high end investors by making available high amounts of capital for big projects in the industrial, infrastructure and service sectors. At the same time, the medium and small ventures must also have credit available to them for new investment and expansion of the existing units. Rural sector in a country like India can grow only if cheaper credit is available to the farmers for their short and medium term needs.

Banks play vital role and are key elements of global economic activities. So the global trend to do

They interpret financial intermediaries as information sharing coalitions. Diamond (1984) shows that these intermediary coalitions can achieve economies of scale. Diamond (1984) is also of the view that financial intermediaries act as delegated monitors on behalf of ultimate savers. Monitoring will involve increasing returns to scale, which implies that specializing may be attractive. Individual households will delegate the monitoring activity to such a specialist, i.e. to the financial intermediary. The households will put their deposits with the intermediary. They may withdraw the deposits in order to discipline the intermediary in his monitoring function. Furthermore, they will positively value the intermediary’s involvement in the ultimate investment (Hart, 1995). Also, there can be assigned a positive incentive effect of short-term debt, and in particular deposits, on bankers (Hart and Moore, 1995). For example, Qi (1998) and Diamond and Rajan (2001) show that deposit finance can create the right incentives for a bank’s management. Liquid assets of the bank result in a fragile financial structure that is essential for disciplining the bank manager. Note that in the case households that do not

It was also agreed by Coleman (2012) where he stated in his book that as banks begin to be countless specially the commercial banks, competitiveness have been one of the major causes for the bank to invest money without the assurance getting back the money they used. This practice turned into a total disaster as it made the bank uneasy to return the money to where it belongs.