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Why Banks Exist Essay

Paper type: Essay Pages: 2 (494 words)

Why do banks and other financial intermediaries exist in modern society,according to the theory of finance? There are multiple approaches to answering this question. The traditional view of banks as financial intermediaries sees them as simultaneously fulfilling the financial-service needs of savers (surplusspending units) and borrowers (deficit-spending units), providing both a supply of credit and a supply of liquid assets. A newer view sees banks as delegated monitors who assess and evaluate borrowers on behalf of their depositors and earn fees for supplying monitoring services.

Banks also have been viewed in recent theory as suppliers of liquidity and transactions services that reduce costs for their customers and, through diversification, reduce risk. Banks are also critical in the payment system for goods and services and have played an increasingly important role as a guarantor and a risk management role for customers.

How have banking and the financial services market changed in recent years? The banking and financial services industries have been undergoing rapid change in recent years.

These changes include the consolidation and increased geographic scope of the banking industry, a blurring of the distinctions between various financial institutions, deregulation, and the implementation of financial strategies made possible by improvements in computer technology and advances in finance theory. With the advent of technical advancements, the banking industry has changed vastly. Some of the new features available for banking customers are: 1. Core Banking 2. Internet Banking 3. Mobile Banking

4. ATM Machines 5. Etc.

What powerful forces are shaping financial markets and institutions today? Which of these forces do you think will continue into the future? Banking is becoming a more unstable industry due, in part, to deregulation which has opened up individual banks to the full force of the financial marketplace. At the same time the number and variety of banking services has increased greatly due to the pressure of intensifying competition from nonbank financial-service providers and changing public demand for more conveniently and reliably provided services.

Adding to the intensity of competition, foreign banks have enjoyed success in their efforts to enter countries overseas and attract away profitable domestic business and household accounts. why many of the forces you named in the answer to the previous question have led to significant problems for the management of banks and other financial firms and their stockholders? The net result of recent changes in banking and the financial services market has been to put greater pressure upon their earnings, resulting in more volatile returns to stockholders and an increased bank failure rates.

Some experts see banks role and market share shrinking due to restrictive government regulations and intensifying competition. Institutions have also become more innovative in their service offerings and in finding new sources of funding, such as off-balance-sheet transactions. The increased risk faced by institutions today, therefore, has forced managers to more aggressively utilize a wide array of tools and techniques to improve and stabilize their earnings streams and manage the various risks they face.

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Why Banks Exist. (2017, Jan 22). Retrieved from https://studymoose.com/why-banks-exist-essay

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