Role of Banks

THE UNIVERSITY OF ADELAIDE SCHOOL OF BUSINESS NAME TRANG THI KIEU HO STUDENT ID 1613946 relegate TUTORIAL 13 (12339) Banks play a central role in the miserliness, they create and maintain the f depressed of money between surplus and shortfall unit and by this facilitate the process of production, distribution, exchange and consumption of wealth. If in that respect were no bank activities, a large of amount of capital of the economy would be idle. consequently, banking activities are vital for the development of an economy.Another function of the bank is happen spreading. They transform risky asset ( loans) to less risker liabilities ( deposits). They also conduct adulthood transformation or liquidity providing function. Banks pool of short-term deposits and then fall out out long-term loans. They can do this base on the opening that different investors have different liquidity preferences. Hence, when banks do not bleed right, it will proceed the whole economy. In conclu sion, a strong banking corpse is very important for an economy.I think it is necessary to regulate the banking system because wishing of regulation can result in some banks taking undue risks and getting into trouble. A problem in banking system can affect the whole economy. In fact, some economist said that one of the reasons that guide to the global financial crisis is the lack of regulation in financial system. Hence it is necessary to have more regulation to keep the banks working properly. likewise much regulation, however, will decrease the competition in financial sector, the high-risk will get bigger 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 ingest more profit. This will bring much benefit to investors and borrowers. For all of these reasons, I think that we should have enough regulation to keep the banks working properly and avoid another crisis but not strict regulation so that not to decrease competition in financial system.