Why do banks exist?

Answer 1

To act as an intermediary between despositors and borrowers basically - but there have been changes to the traditional banks in that nowadays banks provide a lot of new functions to its customers aside from loans and deposit holdings. Savings accounts, mortages, financial market investments etc... I'm doing this question for one part of my University coursework - exactly the same question as well... ----- If I may add to this...

Banks exist primarily to provide a secure place to store wealth held in the form of readily available money.

But like all enterprises staffed by humans, banks also exist in order to make money.

Banks make money by making loans from a portion of the deposits and charging interest on those loans. Banks compete for deposits through the interest rates offered on them. Banks also charge fees for various services, all of which involve moving money from one account to another or issuing checks and credit cards. Plus there are fees for processing loans, etc..

As a result of these various activities - without which the bank would not make any money - banks are considered vital to economic development through their prudent investment of portions of the wealth stored in them. Banks are also considered integral to various other functions related to the management of the nation's money supply and systems of credit.

However, regardless of what banks now do, they exist first and foremost as a secure place to store wealth held in the form of readily available money. If a bank can't do that, it quickly loses credibility as a bank. Once that happens, it won't be in business for very long.