Banks are institutions that safeguard some goods and money, that do business with these goods and that fulfill a social function by stimulating economic activities for people to participate in economic development. That is why one of the services that national banks are obliged to offer to individuals and institutions in a country is to provide them with resources that can be developed, to achieve better standards of living and to increase their capacity to produce and consume goods and services. Money and aid provided by banks should help the economy to keep moving; the economy needs the services of banks and they need the economic activities of people living in society, for example, saving and borrowing.
The functions of the banks are those responsibilities that they have to channel savings and investment between the bidders and capital claimants.
Banks as financial institutions play a key role in the economic system, the structure they make allows the transfer of money between savers and investors and borrowers. A bank accepts deposits to then channel these resources and lend them on the capital market to different economic activities. Banks are the much-needed connection between individuals with capital deficits and individuals with capital surpluses.
They have changed significantly over the years, from banks for deposit of money and issuance of certificates of deposit and commercial paper to functions of monetary control, issuance of loans and credits, deposit of capital, issuance and commercialization of financial products simple as a remunerated account or complex financial products such as financial derivatives.
In many cases, companies are not in a position to finance their own development, or simply to meet the specific requirements of liquidity with the cash flow they generate, even under normal conditions it would not be advisable to finance all of their fixed assets and circulating exclusively with own funds and with the financing obtained from its suppliers.
In order to balance the balance between the issuance of loans and the money in their clients’ accounts, they have diversified their business through factoring, leasing or renting activities, mainly due to the financial risks of being leveraged in their balance sheets that your main business focuses on raising money or liabilities and borrowing that money from customers at a higher interest rate.
Banks help achieve economic efficiency, essential for economic development, in fact, there is an important correlation between the level of bank credit and the development of an economy, countries that have a low penetration of the banking system are usually countries while the more developed economies have a high presence of the banking sector in their economic activities.
Nowadays the most important functions of the Banks are the following:
Channeling the savings through the demand for a profitability by the trust of the client of his deposit of capital in the Bank.
Security in the deposit of capital. Banks keep people’s money and have very powerful security systems that guarantee the money of their clients.
Issuance of loans and credit. For example, a personal loan to set up a business or a loan to buy a home.
Issuance of financial products that offer a guaranteed return or not.
Control of the money supply in circulation following the guidelines of the Central Banks.
Compliance with the minimum reserve ratios to guarantee the liquidity of the capital stock of its clients and thus avoid risks of defaults and contagion to other sectors of the economy.
Balance the ratio between credit expansion and volume of deposits held by the public.
It offers financial and asset advisory services in the field of insurance, payroll direct debit, and optimization of the profitability of savings.
It allows you to defer payment and use of credit and debit cards for the disposition of cash.
Access to credit is of vital importance for the dynamism of the economy because thanks to these resources is that it is possible to create new investment projects that lead to the improvement of productivity and competitiveness of companies. This is why access to financial services can achieve better conditions in terms of opportunities and well-being of the population.
As a conclusion, we can say that the banks fulfill very important tasks of the economy, after all, people deposit their capital in these besides their trust.