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Based on the functions of the banking system, give reasons why governments bail out banks during an economic crisis?

Entrepreneurial Finance

6th Edition

ISBN:9781337635653

Author:Leach

Publisher:Leach

Chapter13: Other Financing Alternatives

Section: Chapter Questions

Problem 6DQ

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Concept explainers

Regulation of Commercial Banks

The main function of any commercial bank is accepting deposits and lending money to borrowers. Apart from these two activities, commercial banks provide a host of other services to their customers, like discounting bills of exchange, acting as a custodian of a customer's will, and so on. In the absence of a proper regulatory framework or proper regulations in place, the commercial banks would have ended up charging exorbitant or varied rates of interest or service charges on the funds loaned by them or the services performed by them.

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Give reasons why governments bail out banks during an economic crisis
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