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Commerical system
Banking system
By Mahir Nazam

LGS

Introduction of banking system.....................................................................................................2

Introduction of banking system.....................................................................................................2
Features of banking system........................................................................................................... 3
Advantages of banking system...................................................................................................... 4
Disadvantages of banking system..................................................................................................5
Conclusion..................................................................................................................................... 6
Bibliography................................................................................................................................... 6

Introduction of banking system

The introduction of the banking system has played a pivotal role in shaping the modern
economy and financial landscape. The banking system refers to the network of financial
institutions, including commercial banks, central banks, and other specialized institutions, that
provide a range of financial services to individuals, businesses, and governments.
The origins of banking can be traced back to ancient civilizations, where early forms of lending
and money management existed. However, the formal establishment of modern banking
systems began to take shape during the Renaissance period in Europe. Since then, banking
systems have expanded and evolved to become crucial components of national and global
economies.
The primary purpose of the banking system is to facilitate the efficient flow of money, manage
financial transactions, and provide various financial services. These services include deposit-
taking, lending and credit provision, payment processing, investment management, and
advisory services. Banks act as intermediaries between savers and borrowers, channeling funds
from individuals and businesses with excess capital to those in need of financing for
investment, consumption, or other financial purposes.
In addition to their role in financial intermediation, banks also serve as guardians of the
monetary system and contribute to economic stability. Central banks, as part of the banking
system, have the responsibility of regulating and overseeing the financial sector, implementing
monetary policies, and ensuring the stability of the national currency.
Furthermore, the banking system plays a crucial role in promoting economic growth by
providing access to credit, facilitating trade and commerce, and supporting investment and
entrepreneurship. It fosters savings and capital accumulation, allowing individuals and
businesses to secure their financial future and pursue economic opportunities.
Over time, the banking system has embraced technological advancements, such as online
banking, mobile banking, and digital payment systems, to enhance the convenience,
accessibility, and efficiency of financial services. These innovations have transformed the way
individuals and businesses interact with banks and conduct their financial transactions.
In summary, the introduction of the banking system has revolutionized the way financial
services are delivered, ensuring the efficient allocation of capital, supporting economic growth,
and providing individuals and businesses with vital financial tools and services. The banking
system continues to evolve, adapting to changing market dynamics and technological
advancements to meet the evolving needs of customers and the economy.

Features of banking system

The banking system encompasses various features and components that contribute to its
functioning and purpose. Here are some key features of the banking system:
1. Financial Intermediation: One of the fundamental features of the banking system is its
role as a financial intermediary. Banks facilitate the flow of funds between savers and
 borrowers by accepting deposits from individuals and entities and providing loans and
credit to those in need of capital. This intermediation function promotes efficient
allocation of resources and supports economic activities.
2. Deposit-Taking: Banks offer deposit services, allowing individuals and businesses to
safely store their money. Customers can open various types of accounts, such as savings
accounts, current accounts, and fixed deposit accounts. Deposits held in banks are
typically insured up to a certain amount by deposit insurance schemes, providing a level
of security for depositors.
3. Lending and Credit Provision: Banks provide loans and credit facilities to individuals,
businesses, and governments. They assess the creditworthiness of borrowers, analyze
risks, and determine the terms and conditions of lending. This enables borrowers to
access capital for various purposes, such as purchasing homes, financing businesses, or
funding infrastructure projects.
4. Payment Services: The banking system facilitates payment transactions by offering a
range of services. These include issuing checks, providing debit and credit cards,
enabling online and mobile banking, and facilitating electronic fund transfers. Banks act
as intermediaries in the transfer of funds between accounts, individuals, businesses, and
countries, enabling smooth and secure financial transactions.
Advantages of banking system
The banking system offers several advantages that contribute to the functioning of the
economy and the well-being of individuals and businesses. Here are some key advantages of
the banking system:
1. Financial Intermediation: Banks act as intermediaries between savers and borrowers,
channeling funds from those with excess funds (depositors) to those in need of capital
(borrowers). This promotes efficient allocation of resources by facilitating investment
and economic growth.
2. Deposit and Payment Services: Banks provide a safe and convenient place for individuals
and businesses to deposit their money. They offer various types of accounts (e.g.,
savings, current, fixed deposits) that provide security for funds and the ability to earn
interest. Banks also offer payment services, such as checks, debit cards, and online
transfers, which make transactions easier and more efficient.
 3. Credit Provision: Banks play a crucial role in providing credit to individuals and
businesses. They evaluate creditworthiness, assess risks, and provide loans and credit
facilities. This enables people to meet their financial needs, such as purchasing a home,
starting a business, or funding education, which might otherwise be difficult without
access to capital.
4. Financial Services: Banks offer a wide range of financial services, including investment
advisory, wealth management, insurance products, and retirement planning. These
services help individuals and businesses manage their finances, protect their assets, and
plan

Disadvantages of banking system

While the banking system offers numerous advantages, it is not without its drawbacks. Here are
some common disadvantages associated with the banking system:
1. Risk of Bank Failures: Banks are vulnerable to financial crises and economic downturns.
In times of instability, banks may face liquidity problems or suffer losses from risky
investments. Bank failures can have severe consequences, leading to loss of depositor
funds, disruptions in lending, and overall economic instability.
2. Concentration of Power: The banking system is often dominated by a few large
institutions, leading to a concentration of economic power. This concentration can limit
competition, reduce consumer choices, and create barriers for smaller banks or new
entrants to the market.
3. Too Big to Fail: Some banks may become "too big to fail," meaning their failure could
have significant systemic consequences. In such cases, governments and central banks
may step in to bail out these banks to prevent widespread financial disruption. This can
create moral hazard, as banks may take excessive risks, knowing they will be rescued in
case of failure.
4. High Fees and Charges: Banks generate revenue through various fees and charges, such
as account maintenance fees, transaction fees, and overdraft charges. These fees can be
burdensome for individuals and small businesses, especially those with limited financial
resources.

Conclusion

In conclusion, the banking system plays a vital role in the functioning of modern economies,
offering numerous advantages while also presenting certain disadvantages. The advantages of
the banking system include financial intermediation, deposit and payment services, credit
provision, liquidity management, facilitation of international trade, financial services, security,
and economic stability. These aspects contribute to economic growth, facilitate financial
transactions, and provide individuals and businesses with access to essential financial services.
However, the banking system also faces challenges and disadvantages. These include the risk of
bank failures, concentration of power, "too big to fail" concerns, high fees and charges,
inadequate access to financial services, cybersecurity risks, complex regulations, and the
potential for economic inequality.
To mitigate these drawbacks, ongoing efforts are made to enhance regulations, promote
competition, improve financial inclusion, strengthen cybersecurity measures, and ensure
responsible banking practices. Balancing the advantages and disadvantages of the banking
system requires a continued focus on stability, consumer protection, innovation, and equitable
access to financial services.
Overall, the banking system remains a critical component of the global economy, supporting
economic activities, facilitating transactions, and providing financial services that contribute to
individual and societal well-being. By addressing the challenges and working towards a more
inclusive and sustainable banking system, we can harness its potential for the benefit of all
stakeholders.

Bibliography
OpenAI. (2022, November 2). Chatbot. Retrieved from ChatGPT: https://chat.openai.com/
OpenAI. (2022, December). Chatbot. Retrieved from ChatGPT: https://chat.openai.com/