3 Семестр additional material banks and financial intermediaries

Banks are financial institutions that accept money deposits and make loans. Included under the term “banks” are firms such as commercial banks, savings and loan associations, mutual savings banks, and credit unions.

Banks are important for three reasons:

1. They provide a channel for linking people who want to save with those who want to invest.

2. They play an important role in determining the money supply.

3. They are a source of the financial innovation that is expanding the ways in which we can invest our savings.

Banks play a critical role in the creation of money, not by printing $ 50 bills but by lending. Banks loans create checking account deposits, a large component of the money supply.

If you wanted to make a loan to some companies, you would not go directly to the president of the company and offer a loan. Instead, you would lend your money to such companies indirectly through financial intermediaries, institutions such as commercial banks, savings and loan associations, mutual savings banks, credit unions, insurance companies, mutual funds, pension funds, and finance companies that borrow funds from people who have saved and in turn make loans to others.

Banks are the financial intermediaries that the average person interacts with most frequently. A person who needs a loan to buy a house or a car usually obtains it from a local bank. Most Americans keep a large proportion of their financial wealth in banks

In the form of checking accounts, savings accounts, or other types of bank deposits.

Financial intermediation is an important activity in the economy because it allows funds to be channeled from people who might otherwise not put them to productive use to people who will. In this way, financial intermediaries help promote a more efficient and dynamic economy.

Thus, banks are the most important of a number of financial intermediaries that channel funds from people who might not put them to productive use to people who can do so. Banks also play a critical role in the creation of money and have been important in the rapid pace of recent financial innovation.

Commercial banking

Commercial banks are businesses that trade in money. They receive and hold deposits, pay money according to customer’s instructions, lend money, etc.

There are still many people in Britain who do not have bank accounts. Traditionally, factory workers were paid wages in cash on Fridays. Non-manual workers, however, usually receive a monthly salary in the form of a cheque or a transfer paid directly into their bank account.

A current account (US: checking account) usually pays little or no interest, but allows the holder to withdraw his or her cash with no restrictions. Deposit accounts (in the US also called time or notice accounts) pay interest. They do not usually provide cheque (US: check) facilities, and notice is often required to withdraw money. Standing orders and direct debits are ways of paying regular bills at regular intervals.

Banks offer both loans and overdrafts. A bank loan is a fixed sum of money, lent for a fixed period, on which interest is paid; banks usually require some form of security or guarantee before lending. An overdraft is an arrangement by which a customer can overdraw an account, i.e. run up a debt to an agreed limit; interest on the debt is calculated daily.

Banks make a profit from the spread or differential between the interest rates they pay on deposits and those they charge on loans. They are also able to lend more money than they receive in deposits because depositors rarely withdraw all their money at the same time. In order to optimize the return on their assets (loans), bankers have to find a balance between yield and risk, and liquidity and different maturities, and to match these with their liabilities (deposits). The maturity of a loan is how long it will last; the yield of a loan is its annual return - how much money it pays - expressed as a percentage.