Can anyone please give me some good ideas on the topic importance of banking ?

Question

i need to write an essay on it 200-250 words,need some good ideas!!!

Answer 1

Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, EFTPOS, and ATM.

Banks borrow money by accepting funds deposited on current account, accepting term deposits and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current account, by making installment loans, and by investing in marketable debt securities and other forms of lending.

Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account.

Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings to.

However the commercial role of banks is wider than banking, and includes:

    * issue of banknotes (promissory notes issued by a banker and payable to bearer on demand)

    * processing of payments by way of telegraphic transfer, EFTPOS, internet banking or other means

    * issuing bank drafts and bank cheques

    * accepting money on term deposit

    * lending money by way of overdraft, installment loan or otherwise

    * providing documentary and standby letters of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures

    * safekeeping of documents and other items in safe deposit boxes

    * currency exchange

    * sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a 'financial supermarket'

The economic functions of banks include:

   1. issue of money, in the form of banknotes and current accounts subject to cheque or payment at the customer's order. These claims on banks can act as money because they are negotiable and/or repayable on demand, and hence valued at par and effectively transferable by mere delivery in the case of banknotes, or by drawing a cheque, delivering it to the payee to bank or cash.

   2. netting and settlement of payments -- banks act both as collection agent and paying agents for customers, and participate in inter-bank clearing and settlement systems to collect, present, be presented with, and pay payment instruments. This enables banks to economise on reserves held for settlement of payments, since inward and outward payments offset each other. It also enables payment flows between geographical areas to offset, reducing the cost of settling payments between geographical areas.

   3. credit intermediation -- banks borrow and lend back-to-back on their own account as middle men

   4. credit quality improvement -- banks lend money to ordinary commercial and personal borrowers (ordinary credit quality), but are high quality borrowers. The improvement comes from diversification of the bank's assets and the bank's own capital which provides a buffer to absorb losses without defaulting on its own obligations. However, since banknotes and deposits are generally unsecured, if the bank gets into difficulty and pledges assets as security to try to get the funding it needs to continue to operate, this puts the note holders and depositors in an economically subordinated position.

   5. maturity transformation -- banks borrow more on demand debt and short term debt, but provide more long term loans. Bank can do this because they can aggregate issues (e.g. accepting deposits and issuing banknotes) and redemptions (e.g. withdrawals and redemptions of banknotes), maintain reserves of cash, invest in marketable securities that can be readily converted to cash if needed, and raise replacement funding as needed from various sources (e.g. wholesale cash markets and securities markets) because they have a high and more well known credit quality than most other borrowers.

Answer 2

The Importance of banking that it provides money to people who do not have it at a cost. The money provided is taken from people who have surplus, and they get some benefits from doing so.

The difference in the cost and benefit is what the bank earns. Without banking it would be difficult to run businesses and to get loans for that too. Landlords also provided loans but since they could not be regulated they started charging huge interests. Banks help in keeping them in check.  

Answer 3

Find out all the mysteries about the Federal Reserve Bank. You'll find it fascinating.

Answer 4

The primary function of banking is to provide credit.  This allows our economy to continue growing and functioning properly.  Look up fractional reserve banking.  200-250 words is nothing.