Impact of well-developed banking system on Nation’s Economy
Impact of well-developed Banking system; Banking sector is the part of the industry which holds the assists of the people. Banking sector of our nation holds the issues of insurance, mortgages, investor services, credit cards and banking activities by government agencies.
But the sector does not stop there; it is much more of what we can think. This sector is not just deposit and take, this section is the key of Nation’s Economy. Analysis of the impact of well-developed banking system on the nation’s economy is a very interesting subject.
Banks of a well-developed company use these financial assets to invest them in an effective way to create more money. This helps a country develop a healthy economy. So today we will discuss the Impact of well-developed banking system on Nation’s Economy.
Banking system as a Monetary Assets of Nations
- The core of every banking industry in the world is holding monetary assists. The deposits are made in the bank by the clients with the promise that if a person or an enterprise depositing it can take it back in the time of need. The banks are not only the caretaker of your money, they use it to regulate into the nation.
- The banks are required to keep only 10% of the money as actual value in its book is that; that they do not run into the devastating back-runs that hold the power of destroying the sector.
- Commercial banking, founded between 1933 & 1999, is the main money center for the finance of the country. These banks not only help corporate, they also help individuals.
Commercial banks are the reason behind the increased living standard of the people. These banks help in the mobilization of the money from the funds deposited and use it to land money. Commercial banks are the key of improvement in:
- Finance development: – The main reason of these banks is to create capital as much as possible. However the capital crested by banks in the nation is used for the nation’s economy. The deposits done by people from different regions of the country are used to create bigger capital.
- Driver of productive investment: – The main purpose of the banks is either get capital development or gets financial development. With the generation of capital or finance helps banks carry out their second purpose.
Well-developed Banking system helps in money rotation in the country
The second purpose of banks is the allocation of money and rotation of capital. This benefits the nations from different projects and the banks also have the chance to earn some good profit.
- Promote privileged industries: – During the allocation of these loans and funds, the bank makes sure that the party receiving it is correct. This is done by checking the credibility of the individual or the corporate. The company should have the proper credibility which ensures the 100% return of the loans or funds provided.
- Finance for the government:-The government requires huge loans to start any business in which the government takes loans from the banks in the country. In return the government gives them securities of some state and the banks get long term interest benefits from the government.
- Driver of banking business: – Huge doors were opened for employees when then banks were commercialized.
Banking system as financial assistance
The commercial or private banks have branches all over the country which ensures services to every person in the country. These branches ensure employment as they need to hire local people for these branches.
- It crested business operation or credit creation: – Banks generate credit for giving financial assistance. This assistance is provided in the form of funds and loans. These are for project development.
- Banks lend these funds and loans for various reasons. They lend for new business, for promoting sales of the company, and for granting loans to expand a business. Moreover, these lending of the money is the key driver of fast economic growth.
- Usually, banks put money in their vaults as a loan and then they earn money on the interest on these loans. But the main conflict in the banking system is that the true value of money is in the form of paper and yet that actual money is nowhere in the vaults. Paper money is the money that grows value.
- Investing as extensively as possible is the only way to decrease the risk in the banking sector. This is the way for banks from running into unexpected loan defaults that hold the power of finishing the bank.
- A bank invested in the Aluminum features market with an interest in increasing its value, this is done to drive up the value in the market and it prevents the aluminum from being sold in the market.
- The banking sector should avoid this at all cost because it holds the power to give a declination effect on the industry.
Banking activities regulations
Banking rules must always be followed by the banks to keep the trust of the general public or investors. Government puts laws in the banking sector to prevent them from engaging in dangerous activities that threaten our economy. The laws are put there because banks are the foundation of our modern economy.
Well these rules are implemented after some hard monetary lessons, for example in 1933 Federal Deposit Insurance Corporation Bank (FDIC) was created after the panics of the banks. In many cases, some laws are protested against and hence they are removed but this only leads to the repetition of the mistakes done in the past.
The excess investment in the subprime mortgage done by many US banks was the root of the financial crisis in 2007-2008. The key reason being the crisis was removal of the limitation; in 2000 a law came into regulation that imposed that there would be only a limited amount of investment in subprime mortgage.
The incident destroyed everyone’s trust in the banking sector. No one will deposit its money into a bank or someone if there is no trust. In conclusion, if there are no deposits the bank will be unable to give loans and invest, thus there will be no economic growth. In other words, to create the trust of people, regulation is essential.
In today’s time, there is a dire need to educate the people of India about our banks, which have an important place in the national economy. In addition, the banking industry is now moving to a new level, so it has become necessary for the youth to aspire for a career to be updated with complete information.
After the commercialization of banks, it has become a huge industry due to which the doors of employment have opened up for millions. These banks have branches in almost the entire country, which has facilitated maximum number of people. A well-developed banking system leads to rapid economic growth of the nation.
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