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Why are banks important?

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Quick Answer

Banks are important because they loan money, accept deposits and attract investment, according to Investopedia. Investment banks are also imperative, because these institutions underwrite equity and debt.

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Banks are vital to investors because the banking system acts as a control mechanism for the flow of capital, notes Investopedia. The management of capital allows banks to flourish financially, which raises the stock value for shareholders. The banking sector is a major part of Wall Street, investing in assets such as securities.

Investment banks play the role of intermediaries when corporate mergers occur, reports Investopedia. The banking establishment may also provide financial consultation and information to companies. Investment banks deal largely with such investment endeavors as initial public offerings and private share offerings. However, larger investment banks, such as JP Morgan Chase and Bank of America, have banks in the commercial sector as well.

Banks offer a safe place where people can store their money, explains Investopedia, so people don't have to carry excessive amounts of cash. Consumers also use banks to issue wire transfers. Banks provide underwriting services by attaching the institution's name to a transaction. For instance, a check with a bank's name on it provides credibility and peace of mind to the person accepting the payment. The banking sector also issues debit and credit cards for the purchase of goods and services.

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