Banking

Banking

Banks are supposed to bring together savings and investments.

Companies often rely on external capital, for instance in order to buy machinery or build factories. Banks support them by granting credit or offering advice on investment choices. Private households make use of bank services, too, for example by taking on loans in order to buy property.

A bank’s task is to gather information on different investment opportunities and to direct cash flows into the most promising investments. As the future is hard to predict, this often fails, resulting in unprofitable investments. Still the financial sector has an important societal function: If people had to accumulate the money needed for every investment by themselves, considerable capital stocks most likely would not be created.