Why Are Banks So Important To The Economy?

  • Why Are Banks So Important To The Economy?

    Basically, banks occupy a central position in modern economies. They manage money from savers and make it available as credit to other actors such as companies and private individuals whose own funds are insufficient. In this function, banks make an essential contribution to the functionality of the economic cycle.

    Functions of banks to the economy

    In a sense, banks act as intermediaries between those who save and those who invest. In doing so, they primarily perform three central functions: transforming amounts, risks and deadlines.

    With the amount transformation, banks create a balance between the supplies of many relatively small savings deposits. In risk transformation, the bank also brings together the different risk appetites of investors and savers under the premise of achieving the widest possible spread of risks.

    Another important economic function of banks is that they usually carefully select their borrowers in their own interest.

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