Question

We have discussed at least two reasons for banks to exist, both of which imply that banks are somehow special, or perform a unique function for the rest of the financial society/world. Explain, in detail, the rationales developed by Fama, and by Diamond in their ground breaking papers. The best answers will quote extensively from the papers.

Answer 1

The reasons for banks to exist according to Fama is that offer interests to customers and financial advice.

What is a bank?

It should be noted that a bank simply means a financial institution that accepts deposit from the public.

In this case, banks are somehow special, or perform a unique function for the rest of the financial world. The reasons for banks to exist according to Fama is that offer interests to customers and financial advice.

They also lend money to firms and keep money safe for the customers.

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