2. What do Banks do?

Evaluation of the role and purpose of banking

  • Loans are essentials to enable firms to invest and expand. However, banks are not the only source of finance. Firms may turn to private investors, stockmarket, government grants or personal savings.
  • In times of recession or shortage of funds, banks may not be willing to lend when firms need it most.
  • Bank lending is profitable for banks and can incur significant costs for the firm.
  • Consumers increasingly need banks to pay for bills electronically.
  • Bank loans and mortgages provide an opportunity to purchase very expensive items and pay back over a long period – e.g. house, car.
  • The poorest consumers often don’t have access to bank account and bank loans, causing the poorest to look outside traditional banking to more exploitative loans, such as payday loans and money sharks.
  • Some insurance services are not necessary, for example, insuring electronic goods is expensive compared to the cost of replacing them.
  • Low-income consumers may feel they cannot afford insurance payments and put themselves at risk.

Leave a Reply

Your email address will not be published. Required fields are marked *