Chapter 9.2 What Do Banks Do?

Bank managers have to make sure that the bank has enough of their depositors' cash on hand to:

fund depositors that come to make withdrawals

How do banks earn a profit?

By charging a higher interest rate on the money they lend than they pay on deposits

Why don't entrepreneurs borrow directly from large groups of savers rather than borrowing from a bank?

It would be time consuming and costly to coordinate such an effort

Financial intermediaries are necessary because:

in many cases, people who want to save don't interact directly with people who want to borrow

Which of the following is one of the services that banks provide?

Banks link savers and borrowers

By taking in deposits from many savers and lending money to many borrowers, banks:

spread the risk, so no one lender is in danger of going bankrupt if a borrower fails to pay back a loan

Banks attract savings from many depositors by

paying interest on deposits

When Professor Tabarrok says that banks provide "valuable middleman services," he is most likely referring to their role in:

linking savers and borrowers

How do banks ensure that the loans they make are productive?

By evaluating the quality of the borrowers

The money that banks keep on hand is called:

reserves