What is the primary role of banks?

The primary role of banks centers around accepting deposits from individuals and businesses and then using those funds to lend to borrowers. This process is fundamental to the banking system, as it facilitates the flow of money within the economy. By accepting deposits, banks provide a safe place for customers to store their money while also offering interest on those deposits. At the same time, when banks lend funds, they typically charge interest which generates revenue for the institution. This cycle of deposits and loans is essential for economic growth, allowing businesses to invest and consumers to purchase homes, cars, and other goods.

In contrast, while investing in foreign currencies can be a function of some banks, it is not their primary role. Underwriting insurance pertains to a different financial service and is not a central banking function. Providing investment advice is also a specialized service that some banks may offer, but again, it does not encompass the core responsibilities of banks as financial intermediaries. Thus, the acceptance of deposits and the lending of funds accurately capture the essence of what banks do within the financial system.