The Fundamental Role Of Bank

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The fundamental role of bank is commonly known as a financial intermediary or a middleman between depositors who provide funds to borrowers in order to make loan. However, in a modern economy world, banks have been engaged in further business activities apart from their core business of deposit-taking, lending and providing service in relation with the current account. The more variety of banking business in nowadays includes derivatives trading, investment management and one of the most outstanding financial activity is securitization. Therefore, as bank becomes a multifunctional financial institution the question has been raise as to whether some extra activities such as securitization change the “traditional core…show more content…
1. The original idea of banking Traditionally bank has long played an important role as a financial intermediaries who create a liquidity to the economic in order to response the need of savers and borrowers. Hence, the most common idea of banking is to be a deposit-taking, lending and helping the customer to manage their risk. The original bank lending process starts from the savers who deposit their funds in banks as they believe in their special expertise to select and monitor the creditworthiness of borrower, as typically the borrowers cannot repay the debt upon the saver demand, bank then initiate to be a middle man of the transaction to solve the liquidity problem. On the other hand, the borrower concern about liquidity because they are unsure whether they have a potential to raise fund in the future which mean both savers and borrowers have their own concerned about the liquidity. Therefore, bank as a financial intermediary can fulfil the need of their customers so the act as a liquid provider for both party. As a result of this, savers and borrowers do not have a ‘direct contractual relationship’ However, the savers can easily assess their funds as the bank has to return their fund in full upon demand, also the borrowers who would like to raise fund, bank is the most reliable source of fund as it can guarantee the liquidity of funds without the need to
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