What Is The Bank Deposit Function?


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Jack Buckby answered
Deposit banking in the United States has two main and distinct functions. Banks are of course a primary part of capital formation. This is because they are able to collect the savings of the people, and put these savings into long-term investments, giving people the chance to gain interest on their money.

  • The primary function
The chief function is that banks create deposits through the extension of credit. This is either done through loans or through investments. This is the primary and most specific duty of banks in the United States and other banks found across the western world. From the economic point of view it's also the most important function, as deposits are the country's formal medium of exchange.

  • Other information
There are people and groups that believe that the capital formation activities within banks and their function of creating deposits should actually be separated. Many people consider that mixing these two functions is wrong. Moreover, there appears to be pretty much no likelihood that a separation like this will ever occur in the United States despite the banking crisis of 2008. The banks seem to be back on track and people are now putting faith back in the banks.

Banks are ultimately responsible for what happens to peoples' money, and hence, they are not taking measures to ensure that the people can continue to put their trust in the banks and continue placing deposits. Without deposits the economy would pretty much collapse and the United States would once again face a collapse of the banking system. Only nationalization would fix this, but in the United States, it's incredibly unlikely for something like that to happen.

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