Current theory suggests that banks exist because of imperfections in our financial system.

Question

Quizplus · Accepted Answer

Banks exist to address market failures and provide financial intermediation services such as pooling savings and investing them in productive activities, managing risk and providing liquidity, and facilitating transactions. These services help to overcome information asymmetries, reduce transaction costs, and increase access to credit and other financial services, which are essential for economic growth and development. However, banks are also subject to various risks, such as credit, liquidity, and operational risks, which require prudential regulation and supervision to ensure their safety and soundness. Overall, the existence of banks reflects the need to balance the benefits and costs of financial intermediation and to ensure that financial markets work efficiently and effectively for the economy as a whole.

Current Theory Suggests That Banks Exist Because of Imperfections in Our