What is the role of banks in development of country?
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Answer Posted / faalih
Commercial banks are the most significant of the financial
intermediaries. They play important role in all the areas
listed by you except that in overcoming unemployment and
encouragement to young entrepreneurs their role would
depend the policies and programs of their stakeholders.
Loans account for over half of the total bank assets in the
U.S. commercial banking system. Bankers lend to businesses,
consumers, and governments (both domestic and foreign). The
second largest category of bank assets is investments, held
by banks for both liquidity and income purposes. These
investments include U.S. government and government
guaranteed securities, the bonds of states and
municipalities, and private securities. Banks also hold
cash assets, mostly for liquidity purposes, but also
because the banking authorities require that a certain
fraction of deposits be held in cash-asset form. Of the
banking system's liabilities, about three-fourths are in
the form of deposits, primarily from individuals and
companies, but also from domestic and foreign government
agencies. Nondeposit liabilities include borrowings on the
federal funds market.
Role of Central Banking
The foremost monetary institution in a market economy is
the central bank. These are usually government-owned
institutions and are responsible to the national interest.
Most central banks perform the following functions: They
serve as the government's banker, act as the banker of the
banking system, regulate the monetary system for both
domestic and international policy goals, and issue the
nation's currency. As banker to the government, the central
bank collects and disburses government income and receipts,
manages the issue and redemption of government debt,
advises the government on all matters pertaining to
financial activities, and makes loans to the government. As
banker to the nation's banks, the central bank holds and
transfers banks' deposits, supervises their operations,
acts as a lender of last resort, and provides technical and
advisory services. Monetary policy for both domestic and
foreign purposes is implemented and, in many countries,
decided by the national banking authorities, using a
variety of direct and indirect controls over the financial
institutions. Coins and notes that circulate as the
national currency are usually the liability of the central
bank.
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