Contribution by NBFIs and Banks

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Financial institutions, including banks and nonbanks, provide some or all of the following core financial services. These services are often provided in 

Combinations:

1. Some financial institutions provide payments services �" by issuing claims that have the capacity to be used in settling transactions. To serve as an effective means of payments, a claim must have a highly stable and reliable value, be widely accepted in exchange and must be linked to the arrangements for ultimate settlement of value.

2. Liquidity: is the ease with which an asset’s full market value can be realized once a decision to sell has been made. Financial institutions enhance liquidity through specialization and scale.

 

3. Divisibility: Divisibility is the extent to which an asset can be traded in small denominations.

Inaddition, aggregate small denomination claims to meet divisibility preferences of the community.

4. Store of value is the extent to which an asset provides a reliable store of purchasing power over time �" this is fundamental to satisfying savings preferences. 5. Information is costly to access and process. Providing economies of scale in processing and assessing risks is an important role of financial institutions. 6. Risk pooling is the extent to which an asset spreads the default risk of the underlying promises by pooling. By pooling assets, financial institutions have much more scope to risk pool than do individuals do.

7. Banks provide an attractive bundle of most of the core financial services in their deposit.