Banks and their effect on the economy essay example

Banks are an important sector of any given economy. It is in these banks that individuals and companies store their liquid assets. Liquid assets are of great importance to the economy. Once at the bank, the liquid cash can be used to develop the economy. The bank lends the deposited money to other parties which then use it to make other investments. This extension of credit to other customers helps to create money in an economy (Jeucken 55). The creation of money affects the money supply. Increase in the money supply in the market increases the people’s purchasing power, thereby, improving the economy.
Banks are, in most countries, the most important financial institutions. They offer a link to the debtors and creditors who in return create a link between surplus and deficit money. The banks close this gap by lending the surplus to those with deficits. This bridge makes it possible for the economy to run smoothly and generates a fee income in an economy (Jeucken 56). This aspect of allocation of funds to different sectors in the economy affects the economic growth. As a result, banks help improve a company’s economy
In addition to harmonizing surplus and deficits, banks also provide services to customers that help them make decisions on investments. They assist investors to put up their businesses and ensure that they grow to the point of making profits. The banks are always better placed to assess risks and advise the investor accordingly (Jeucken 56). This way they help investors make a sound decision, which in return, benefits the economy at large. They are, therefore, an important sector of any growing economy.

Works cited

Jeucken Marcel. Sustainable Finance and Banking: The Financial Sector and the Future of the Planet. U. S. A Routledge, 2001. Print.