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Importance of Bank in the Daily Life

Banking an important role the financial life of a citizen as well as business and the importance of banks can be seen from the fact that they are considered as to be the life-blood modern economy. Although no wealth is created by Bank, but their essential activities facilitates the process of production, exchange and distribution of wealth. In this way they become the effective partners in the process of economic development and growth. In the words of Stephenson & Brital "Banks are the custodians and distribution of liquid capital, which is the life-blood of ou commercial and industrial activities and upon the prudence of their administration depend the economic well- being of the nation".

 What do banks do?

Banks play an important role an intermediary (যোগাযোগের মাধ্যম), in the financial system. They have three main functions:

1. Banks are where people can safely deposit their savings, which banks then pay interest on. It there were no banks, people would have to store and protect their savings themselves, which would involve major risks. 

2. Banks are largely responsible for the payments system. Electronic payments are becoming more important as people use less cash. This means that banks are processing more card payments transfers, direct debits, etc. every day. 

3. Banks issue loans to both people and companies. Without banks, it would be very hard for people to buy a home or start a business, or for companies to make investments, for example.

 Banks do a variety of other things, such as helping corporations with their complex financial needs. This can range from the various ways to gain access to capital for growth and investments, to assisting in mergers and acquisitions, to converting currencies.

Why is this important? 

  • Our economy couldn't function without banks. By attracting savings and granting credit, banks are the oil for the wheels that keep the economy turning.
  •  Without banks we'd have to pay for everything with cash, which we'd have to save somewher That's obviously very risky. 
  • Without banks as a go-between, savers and borrowers would have to find each other personally and a single transaction between a saver and a borrower would be very costly: just think of the fees you'd have to pay a solicitor to draw up a contract. 
  • Plus, the saver would be assuming a big risk-if the borrower can't repay, the saver would lose all their savings. A bank fends money to a lot of people and companies. If some are unable to repay their loans, the bank can absorb these losses and savers won't be affected. 
  • Banks also help solve the issue that customers generally want ready access to the money the deposit, while many loans require long-term commitments, such as a 30-year mortgage fo financing a house.
  •  So banks borrow (i.e. hold customers' deposits) short-term but lend long term. By doing thi they transform debts with short maturities (deposits) into credits with very long maturities managing the risks associated and collecting the difference in the interest rate as profit. This known as "term transformation" and is a vital part of banking.

 

 In fine, Banks play an important part in a nation's economy by providing a safe foundation for individuals and businesses to invest or deposit their money, which allows the bank to use the more in its possession for loans. The ability for the public to receive these loans enables them to mak purchases, which drives the economy at different levels. The bank is able to take the deposits, which start out as liabilities, and turn them into assets. This is accomplished by the banks investing the money that is deposited in way that gains higher returns than what is being paid to the depositor's account when they receive interest. These allow the banks to loan money and still have the funding to cover any withdrawals that an account holder may make. 

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Related Questions

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