21 FUNCTIONS OF BANKS

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Banks are financial institutions that accept various types of deposits and use these deposits for granting various types of loans.

The business of banking is that of an intermediary between the saving and investment units of the economy.

Banks gather surplus funds from millions of widely dispersed individual savers and mobilize them for investors.

In other words, banks act as an intermediary between surplus units (savers) and money deficient units (investors).

Functions Of Banks

1. They accept deposits from their customers in the form of savings accounts, current accounts and time deposit accounts.

2. They carry out the standing order of their customer for making payments such as TV subscriptions, insurance premiums, rent, electricity, telephone subscription etc.

3. They lend money with security (loan) and without security (overdraft). Interest rates on loans are typically higher than those offered by banks to customers who deposit money with them. 

4. They also carry out business on behalf of the government. For example, they usually paid pensions, and collect taxes.

5. They are also involved in the underwriting of stocks, funds and other investment assets.

6. They also act as trustees for their customers, ensuring that their money and assets are safe.

7. Banks also advance money by discounting or purchasing bills of exchange.

8. Banks facilitate the exchange of goods and services by offering online payment options.

9. They collect pension and dividend payments on behalf of their clients.

10. They also make periodic payments on behalf of their clients, who may have given banks standing orders to make such payments.

11. Banks also collect cheques on behalf of their customer through their clearing section

12. Banks also facilitate international trade by providing foreign exchange services.

13. They also send money via bank drafts to any location where they have branches or agents working for them.

14. Another important function of banks is that they mobilize funds from the surplus units of the economy to the deficit units of the economy.

15. Banks also contribute to capital formation by providing the much-needed finance for the production of goods and services.

Capital formation refers to a rise in the capital goods available to a country.

16. Banks contribute to economic growth by providing short-term financing to new and small-scale businesses.

17. Banks also facilitate the transfer of funds from one person to another and from one location to another

18. They also provide counselling services to businessmen and businesswomen on matters relating to their finance.

19.  Banks also assist in the implementation of monetary policy by the government. Indeed, Most monetary policies made by the government are implemented by banks

20. Banks also provide finance to money market institutions. This is the reason why banks are considered one of the most important money market institutions 

21. As a corporate social entity, banks are also involved in providing special social services.

For example, banks could provide free medical services to communities or raise awareness about a social issue.

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