Role of Banks in the Financial System:
Banks perform a multitude of functions, but their principal responsibility is to accept deposits from individuals with surplus funds, consolidate them, and extend loans to those in need of financial resources.
Financial Institutions known as banks serve as intermediaries between depositors, who provide funds to the bank, and borrowers, who receive loans from the bank. The term “interest” is used to refer to both the remuneration that banks offer for deposits and the revenue they generate from loans.
Ensuring the safety and soundness of banks is a significant public policy issue, and governmental policies have been formulated to mitigate the occurrence of bank failures and the ensuing panic they can trigger.
Governance of Banks in Global Economy:
In many nations, Financial Institutions are required to obtain a charter in order to engage in banking operations and qualify for government-supported safety nets, such as emergency loans from the central bank and explicit guarantees to protect bank deposits up to a specified threshold.
Financial Institutions are governed by the regulations of their country of origin and are generally subject to routine oversight. If banks engage in international operations, they may be subject to regulatory oversight by the host nation. Regulatory authorities possess extensive authority to intervene in distressed financial institutions with the aim of mitigating disruptions.
Role of Banks in the Fiscal 2023:
As we approach the mid of 2023, it is important to note that the global economy continues to exhibit fragility. There are numerous uncertainties arising from an exceptional combination of factors, including Russia’s incursion into Ukraine, disruptions in supply chains, a significant increase in inflation, and the implementation of restrictive monetary policies worldwide. There is a significant likelihood of a mild recession or stagflation occurring in certain economies.
In the long run, Financial Institutions will have to explore novel avenues of generating value that transcend conventional product, industry, or business model limitations. The forthcoming economic order is expected to necessitate that bank executives exhibit unwavering determination and remain committed to their role as custodians and enablers of capital movements.
Financial Institutions ought to demonstrate a proactive approach by anticipating emerging trends and shaping them to their advantage. It is imperative that they remain ahead of the curve and envision possibilities beyond the current state of uncertainty.
Credits:
Jothy Sudharsana Guptha
Financial Planning Team
