Global Bank Regulation: Principles and Policies

Chapter 1

The Changing Nature of Banks

Banks provide the lifeblood of a modern economy. They take funds from firms and individuals with surplus savings and allocate them to other firms and individuals who need to borrow. Other types of financial intermediaries also perform this economic function, but banks are distinguished by their promise to return savers’ funds at any time, or on demand. Before we examine the justification for bank regulation, it is essential that we understand the nature of banks’ activities and why the combination of activities renders banks potentially special. We will also look at the ways in which the activities of banks have changed, often quite dramatically, in the past two or three decades.

Definitions

Banks are middlemen, ...