What Role Do Banks Play in a Nation's Economy?

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Banks play an important part in a nation's economy by providing a safe foundation for individuals and businesses to invest or deposit their money, which allows the bank to use the money in its possession for loans. The ability for the public to receive these loans enables them to make purchases, which drives the economy at different levels.

The bank is able to take the deposits, which start out as liabilities, and turn them into assets. This is accomplished by the banks investing the money that is deposited in a way that gains them higher returns than what is being paid to the depositor's account when they receive interest. This allows the banks to loan money and still have the funding to cover any withdrawals that an account holder may make.