What are the Role of Banks in the Economy?

Commercial banks are a vital element of any functioning market economy. Banks have two principal tasks or functions.

1. Commercial banks facilitate any transfer of payment between private households, companies and Government entities. Cash plays only a minor role on our daily lives compared to banks who organize a large part of our monetary dealings. This can be done through electronic transactions without any bank notes or coins involved.

2. Another important function of banks is that they act as a financial intermediary for people and businesses that save money and to those who needs loans. It’s most important functions being an intermediary are:

• Pooling of assets
• Maturity transformations.
• Risks transformation for savers and providers of capital.