although we focus on commercial banking because this is the most important financial 638304

Because banking plays such a major role in channeling funds to borrowers with productive investment opportunities, this financial activity is important in ensuring that the financial system and the economy run smoothly and efficiently. In the United States, banks (depository institutions) supply more than $6 trillion in credit annually. They provide loans to businesses, help us finance our college educations or the purchase of a new car or home, and provide us with services such as checking and savings accounts. In this chapter, we examine how banking is conducted to earn the highest profits possible: how and why banks make loans, how they acquire funds and manage their assets and liabilities (debts), and how they earn income. Although we focus on commercial banking because this is the most important financial intermediary activity, many of the same principles are applicable to other types of financial intermediation.