Banks are intermediaries between depositors (who lend money to the bank)
and borrowers (to whom the bank lends money).
Main purpose of banks
1. Keep money safe for customers
2. Offer customers interest on deposits, helping to protect against
money losing value against inflation.
3. Lending money to firms, customers and homebuyers.
4. Offering financial advice and related financial services, such as
insurance
n keeping the economy afloat and in fueling recovery.
Commercial banks play an important role in the financial system and
the economy. As a key component of the financial system, banks
allocate funds from savers to borrowers in an efficient manner. They
provide specialized financial services, which reduce the cost of
obtaining information about both savings and borrowing opportunities.
These financial services help to make the overall economy more
efficient.
Banks are a critical intermediary in what is called the payment system, which helps an economy
exchange goods and services for money or other financial assets
Banks are a financial intermediary—that is, an institution that operates between a saver who
deposits money in a bank and a borrower who receives a loan from that bank.
f course, when banks make loans to firms, the banks will try to funnel financial capital to healthy
businesses that have good prospects for repaying the loans, not to firms that are suffering
losses and may be unable to repay.
along with making transactions much safer and easier, banks also play a key role in the creation
of money.
Banks, as explained, receive deposits from individuals and businesses and make loans with the
money
Commercial banks give loans to organizations in either cash credits,
overdrafts, term loans, purchase/discounting of bills, or issue of letter of
credit. Banks help enterprises by providing loans to produce goods and
contribute towards industrial growth and generate employment
opportunities.
All the funds deposited are mingled in one big pool, which is then loaned out