The Banking System

Abstract

The purpose of a banking system is to utilise the surplus funds available in the economy which would otherwise be sterile and unproductive. There are two distinct phases in the process. First, the surplus funds have to be collected and this requires banks which inspire the confidence of the public generally and a culture which includes the habit of banking. Then, the surplus funds which have been collected have to be utilised effectively. This is a natural division because there are two distinct groups of people involved. First, there are those who have surplus funds, and this includes the vast majority of us at some time or other. Then, there are those who require funds. Of course we could all do with additional funds, but the banking system needs to filter the applications so that only those who can organise successful projects have funds made available to them. The situation can be explained through Figure 31.1.