A depository institution creates liquidity and pools risk.

Question

Quizplus · Accepted Answer

Depository institutions, such as banks and credit unions, create liquidity by transforming deposits, which are short-term and can be withdrawn at any time, into loans, which are longer-term. This process allows for more funds to be available for borrowing than would be possible if each depositor had to directly find a borrower for their funds. They also pool risk by spreading the risk of default among many depositors, rather than having it concentrated with a single lender.

A Depository Institution Creates Liquidity and Pools Risk