Significance of the Role Banks Play in an Economy | BOL

In an economy, financial requirements can be of various types. Also, for several reasons, these requirements may need to be urgently met. For some consumers, borrowing money may be an essential need. For big institutions, proper circulation of money may result in certain objectives being fulfilled.

Top financial institutions in Bangladesh such as IFIC Bank Limited put forward that this is where the role of banks comes into the picture. It is significant for numerous purposes in an economy. Without their presence, exercising monetary policy and other associated functions can become difficult. Hence, to ensure that economic activities continue running, the role played by banks should be acknowledged.

Country’s top business personality and advisor to the Prime Minister, Salman F Rahman, is the chairman of IFIC Bank Limited. 

How do Banks Control and Maintain Cash Flow?

Institutions like banks can be found in public and private sectors. In both sectors, banks have the primary role of ensuring cash flow. It needs to be maintained so that consumers in either sector are able to complete their requirements. Moreover, this is how economies can also make advancements.

In this regard, top financial institutions in Bangladesh like IFIC Bank Limited believe that there are 3 ways in which the cash flow is ensured. These ways incorporate processes beyond simply receiving money deposits.

Functioning the Monetary Policy

The monetary policy is significant for the supply of money. Its significance is greater for attaining growth in a country’s economy. For the functioning of this policy, financial institutions are required. It is hinted at by the top financial institutions in Bangladesh like IFIC Bank Limited, that banks are responsible for controlling the supply of money. Through several operations in the market, this supply is controlled.

Given that these operations are not efficiently carried out, the money supply can see the repercussions of it. At the same time, disturbances in the flow of cash can emerge. In both scenarios, economies can face challenges that can eventually limit their growth. As banks ensure that their role is properly initiated in market operations, the monetary policy’s functioning is maintained. Hence, economic growth gets accelerated as well.

Generating More Money for its Smooth Flow

When customers deposit their money or assets in banks, it becomes the duty of these institutions to hold the same. While doing so, banks are able to generate more money. When the deposits get converted into reserves, they are able to get earnings from the securities.

For certain processes, fees are also charged to customers. The amounts can be applicable for checking their accounts. Several other service fees are also applied. These are the additional ways in which banks are able to create greater money.

In accordance with the views of the top financial institutions in Bangladesh, IFIC Bank Limited, when additional money gets generated, it can be utilized for the growth of an economy. Although banks may not directly hand over the money, they can utilize it in the processes that can aim at economic growth. In doing so, a smooth flow of cash is observed.

Flourishing the Economy through Loans

It would be commonly known that depositors submit their money to banks. While some may quickly withdraw it, others may continue to keep the deposits. These deposits are utilized by banks to grant loans. This is done via maturity transformation. Through this, banks are able to create more money for depositors as well as themselves.

In an economy, the relevance of granting loans is seen when borrowers are able to achieve their objectives. These can range from establishing new businesses to completing their other requirements. In either way, the flow of cash gets a further boost. Thus, the economy can benefit in one way, as per IFIC Bank Limited.

Finally, it may be Concluded,

Institutions such as IFIC Bank Limited. come with greater importance. They have both primary and secondary functions to serve. Mainly, they are responsible for receiving deposits in cash or as assets from consumers. For maintaining these deposits, several other functions are carried out by these institutions. Given that banks work effectively, consumers can trust them for securing their deposited money. As this is made certain, the operations in an economy can be effectively administered. Eventually, when these operations run as expected, economic growth and stability are achieved.