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What Do Banks Do?
| Content Provider | WatchKnowLearn |
|---|---|
| Description | Some people want to save and invest, others want to borrow. Sometimes, savers and borrowers link up directly. But most times, they don’t know each other. So they rely on institutions that bridge them together. These bridges are called financial intermediaries, and this video will show you one kind—banks. How do banks operate? On the savings side, they attract depositors by paying interest on deposits. On the borrowing side, banks make loans, for which they charge interest. The key to a bank’s profit is in charging a higher interest for loans than the interest paid out to depositors. Of course, to make sure that loans are as productive as possible, banks have specialized staff and systems for evaluating loan applications. That sort of due diligence, and specialization is central to what a bank does. Not only does a bank coordinate the savings of many, but it also undertakes the task of studying borrowers in order to determine the most qualified. And then, to further minimize risk, a bank will spread its money out across a whole portfolio of loans. Thus, if one loan goes bad, the bank won’t go bankrupt. In this way, you can see how banks provide valuable services—they allow you to earn interest on your savings, while also turning those savings into loans, which help economic growth. Notice though, that as a depositor, your savings won’t just rest in a vault. But then, what happens when you decide to make a withdrawal? Banks account for that by having reserves. Banks keep an eye on their reserves so they can cover the withdrawals of various depositors. Predictably, problems arise, when there aren’t enough reserves to cover withdrawals. In the words of our previous video, that’s one kind of failed intermediation. In the next video, we’ll look at a different kind of intermediary—stock markets. There, we’ll show you how stock markets turn savings into investment. Hang tight, and see you then! |
| Language | English |
| Access Restriction | Open |
| Rights License | Educational Community License |
| Subject Keyword | k-12 homeschool Banks homeschooling home school parents educational videos k12 preK-12 Social Sciences Economics and Business Economics Social Studies Economics Concepts Macroeconomics |
| Content Type | Video |
| Educational Role | Student Teacher |
| Educational Use | Self Learning Lecture |
| Time Required | PT4M32S |
| Education Level | Class XI Class IX Class XII Class X |
| Pedagogy | Lecture cum Demonstration |
| Resource Type | Video Lecture |
| Subject | Money and Banking |
