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    Why Are Banks Special

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    Kunal Bhodia
    Banks are special because they play important roles in the economy. They accept deposits from households and use those funds to issue loans to firms. This intermediary role allows banks to fuel economic growth. Banks also help address future uncertainties by paying interest on deposits. Their ability to create credit through loans and other facilities helps keep the economic cycle moving by generating more investment and jobs. While technology has reduced the need for physical bank branches, banks will remain vital as the intermediary that facilitates flows of money between households and businesses.

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    Why Are Banks Special

    Uploaded by

    Kunal Bhodia
    281 views2 pages
    Banks are special because they play important roles in the economy. They accept deposits from households and use those funds to issue loans to firms. This intermediary role allows banks to fuel economic growth. Banks also help address future uncertainties by paying interest on deposits. Their ability to create credit through loans and other facilities helps keep the economic cycle moving by generating more investment and jobs. While technology has reduced the need for physical bank branches, banks will remain vital as the intermediary that facilitates flows of money between households and businesses.

    Original Description:

    BASICS OF Banks

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    Banks are special because they play important roles in the economy. They accept deposits from households and use those funds to issue loans to firms. This intermediary role allows banks to fuel economic growth. Banks also help address future uncertainties by paying interest on deposits. Their ability to create credit through loans and other facilities helps keep the economic cycle moving by generating more investment and jobs. While technology has reduced the need for physical bank branches, banks will remain vital as the intermediary that facilitates flows of money between households and businesses.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    281 views2 pages

    Why Are Banks Special

    Uploaded by

    Kunal Bhodia
    Banks are special because they play important roles in the economy. They accept deposits from households and use those funds to issue loans to firms. This intermediary role allows banks to fuel economic growth. Banks also help address future uncertainties by paying interest on deposits. Their ability to create credit through loans and other facilities helps keep the economic cycle moving by generating more investment and jobs. While technology has reduced the need for physical bank branches, banks will remain vital as the intermediary that facilitates flows of money between households and businesses.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 2

    Why are banks special?

    When I look at a bank I look it in two different platforms. First, where it is a


    physical institution and second, it is the oil in the economic machine. Obviously
    both the functions are subset of each other. As a physical institution it provides
    the services to its customers and indirectly running the economic machine. On
    the contrary, when it is playing the role of oil in the economic machine then it
    provides services to economy as a whole by indirectly serving to its customers.
    Like economics has two fields micro and macro similarly according to me bank
    also have duo role to play macro and micro.
    Banks are special because of the various types of services they provided. These
    services can be different for different groups of people in the economy, but it is
    because of those services that banks are of utmost importance. One of the most
    important function of the bank is that they accept deposit. Banks are the only
    institution who is allowed to accept deposit. The question which arises is that
    why do people deposit? People deposit because they want to be shielded against
    the uncertainties of future. Going a step ahead, why do the uncertainties arise?
    Because of the change in time value of money. And to overcome this
    uncertainty bank provides interest on the deposits which is arrived after the
    adjustment with the inflation rate of the country.
    Banks are important because it is the intermediary between two most important
    entities in any economy i.e. Firm and Household.





    The above chart explains that household gives deposits to the banks and banks
    forward the deposited amount to the firms who are in need for the loans and
    firm uses these money to invest in some projects and pays the money back with
    interest to the bank. Bank keeps some percent of interest with themselves to
    perform the day-to-day functions and pays the rest to the depositors.
    FIRM
    BANK
    HOUSEHOLD
    deposits Loans
    Interest
    Payment
    Interest
    Payment
    One of the other reasons why banks are special is that it helps in credit creation.
    It gives various facilities like overdraft, loans etc to keep the economic cycle
    moving. As result of credit creation the economy as a whole grows and gets
    more exposure to credit money which is invested in newer projects which help
    in improving job opportunities, technological advancement etc. as a result of the
    credit given more money is generated in the economy. As a result of which
    there is circulation of money in the economy. Banks acts like a regulator as it
    increases or decreases the interest rate seeing the inflation of the country.
    There are many other functions of banks which are the reasons for banks being
    special like agency functions, utility functions etc.
    With the advancement of technology the question which now arises is that, Are
    banks still special?
    Continuing my discussion from the first paragraph, we see banks in two ways
    first as a physical institution. With the technology advancement and added
    functions of ATMs it is now said that ATMs are the bank in itself. As it
    virtually do all the functions of bank which a bank as a physical institution used
    to do. However, the bank will still be the catalyst by performing its functions in
    the economic machine.

    KUNAL BHODIA
    FSB2013002291

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