Economic Function That Banks Play in Our society

Economic Function That Banks Play in Our society

What is the importance of Banking in the present world? The banking system plays a vital role in any economy that plays a crucial role in maintaining a smooth cash flow. The banking system is considered to be the life-blood of the modern economy; they facilitate the process of production, exchange and distribution of wealth. A well-functioning financial system is a fundamental pillar of a modern economy, and banks perform essential functions for society. Banks should be able to lend money to consumers and businesses whenever they need money. If banks fail to fulfil responsibilities, the consequences will be felt by the entire economy. It is therefore essential that banks can have enough cash so that they can act as a helping hand in our economies.

Importance of bank are as follows:

  • Collections of Savings and Offering Loans- The bank must be able to accept surplus cash from people and business houses and advances loan to businesses and individuals who need it. It is the basic principle on which every bank works.
  • Money Transfer- These institutions facilitate the making of payments from one place or persons to another using cheque, bills of exchange and drafts, instead of cash. Business Bank Account Singapore makes payment incredibly convenient in case of massive amounts, and this facility is a great help for traders and business people.
  • Encourages Savings- Bank encourages individuals and businesses as they offer them interest on their deposited money. The bank is the safest mode of investment as they provide a guaranteed return on your investments.
  • Transfer Savings into Investment- These institutions transfer the savings from the people and pump that amount in the economy in the form of investments.
  • Discounting Bill of Exchange- Banks allow the facility of discounting the bill of exchange. Banks discount their bill of sale of consumers and help them in financial troubles.
  • Financing Internal & External Trade- These financial institutions help merchants and traders in financing internal and external trade by discounting a foreign bill of exchange, issuing of letters of credit and other guarantees for their customers.
  • Act as an Agent- The Corporate Account Opening Singapore acts as an agent and help their customers in the purchase and sales of shares, provision of lockers payment of monthly and dividends on the stock.
  • Acts as an intermediary- It acts as an intermediary between people having surplus money and those requiring cash for various purposes.
  • Economic Development- Bank drives the economic development of the country by providing credit to farmers, small-scale industries and self-employed individuals.
  • Capital Formation- Deposits accepted by banks from other peoples are converted into loans and advances for industrial and trading activities to business organizations. This way, banking generates revenue, they convert savings into investment (Charging higher interests on loan and offering a lower loan on deposits), leading to capital formation and development of the economy.

Banking helps businesses through a variety of services like providing long-term and short-term finance, arranging remittance of money, collection of cheques and bills etc.

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