17 Oct 2022 Editorial:The bigger picture of intermediation, financial crises
Source: The Hindu
News: Nobel Prize in Economics for the year 2022 offers a deeper understanding of the genesis, the propagation, and the management of financial crises.
Role Played by banks in modern economies:
- Banks are the cornerstone of the financial system.
- Mobilize savings for investments.
- Create opportunities to pool risks.
- Improve allocative efficiencies.
- Banks Lower transaction costs between borrowers and lenders.
Risk associated with Banks:
- Banks are vulnerable to small shocks and market sentiments that may trigger a financial crisis or bank run.
- Rise in Non-Performing Assets may lead to severe economic consequences.
- Risk associated with maturity transformation where the bank has to turn short-term deposits into long-term lending.
- Bank Run due to mismatch of assets (loans) and liabilities (deposits) of banks.
- Small rumors of bank run could trigger belief among the depositors that their deposits are at risk and may trigger a financial crisis
Article: The bigger picture of intermediation, financial crises(Niloy Bose and Sudipta Sarangi)
Article Link: https://www.thehindu.com/opinion/op-ed/the-bigger-picture-of-intermediation-financial-crises/article66018185.ece
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