Banking Expansion

Abstract

For analytical purposes, a bank may be treated in several ways. It may be treated as a legal entity, the functions and activities of which are prescribed by the laws, customs and conventions, and shaped by the historical development of the country in which it operates. It may also be treated as a decision-making unit, whose objective may either be profit-maximisation or sales-maximisation, or some combination of the two. As such it is similar to any other firm, but a bank’s maximising activities are more stringently subject to a liquidity constraint, since it is required to repay its deposit liabilities on demand or at short notice. Moreover, because of its importance as a source of money, and its strategic role in the liquidity position of the economy, there has been a recent tendency by economists to treat the banking industry as a ‘quasi-public utility’.