Role of Banks

THE UNIVERSITY OF ADELAIDE SCHOOL OF line of business NAME TRANG THI KIEU HO STUDENT ID 1613946 CLASS TUTORIAL 13 (12339) Banks playact a central role in the economy, they build and maintain the endure of money in the midst of surplus and deficit unit and by this help oneself the process of production, distri entirelyion, exchange and consumption of wealth. If there were no bank activities, a large of amount of capital of the economy would be idle. Hence, banking activities are rattling for the development of an economy.Another function of the bank is risk spreading. They transform risky summation ( loans) to less risker liabilities ( deposits). They also conduct maturity transformation or liquid providing function. Banks pool of short-term deposits and then give out long-term loans. They screw do this base on the theory that polar investors have different liquidity preferences. Hence, when banks do not work properly, it will affect the unharmed economy. In conclusion, a strong banking system is very important for an economy.I hypothecate it is necessary to regulate the banking system because overleap of regulation can vector sum in whatsoever banks taking excessive risks and getting into trouble. A hassle in banking system can affect the whole economy. In fact, some economist said that one of the reasons that led to the global financial crisis is the lack of regulation in financial system. Hence it is necessary to have to a greater extent regulation to keep the banks working properly. Too much regulation, however, will decrement the controversy in financial sector, the big will get large and the small who cannot compete will not be able to survive.Competition between banks forces them to keep the interest margin low to compete. It also helps banks to have incentives to create innovation to work better and make more profit. This will pay back much benefit to investors and borrowers. For all of these reasons, I think that we should have p lentiful regulation to keep the banks working properly and avoid another crisis but not strict regulation so that not to decrease competition in financial system.