Essay: Existence of Banking System

Sample Essay

The resultant issue is now vulnerable and serious. The entire reason of the banking system’s existence is to receive all the money from saving accounts and those with infrequent surplus and then to provide to productive ventures. In a good stable economy this works very well (Brunnermeier 2009). A competent collection structure is vital to all economies, and is the sole method through which a healthy financial growth is possible.

This is the consequence when many banks start making heavy losses concurrently. For each bank is aware that other banks have also generated losses and so they discontinue lending in order to hold on to their cash reserves. The credit facilities are ceased and the market collapses. This is exactly what made Northern Rock to crumple.

It may come as no solace to the people depositing money in Northern Rock who lined up so uncomplainingly outside the branches in their local city, but they are distant from the first fatalities of banking horrors. The terminologies such as banking and fright have been associated for as long as the existence of financial institutions. The foremost US bank Lehman Brothers, for instance, puts all the blame of this calamity on the beginning of the primarily exclusive financial collision and successive bank sprint on the instant when some useless and insipid business analyst in 1622 from the finance division of the Roman Empire determined it would be a pleasurable thought to demean its currency.

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