Finance for Non-Financial Managers and Small Business Owners

By Lawrence W. Tuller | Go to book overview

Chapter 6
Banks and Bank Terminology

BANKS HAVE BEEN and are likely to continue to be the cornerstone of our business community. Without banks, we couldn’t pay our bills with checks, deposit our cash in a safe place, or borrow money when we run short of cash.

We trust banks. After all, doesn’t the federal government guarantee that we’ll get our money back, regardless of how inefficiently a bank may be managed? When we borrow money, the loan agreement we execute clearly spells out how much we must pay back on specific dates. What could be simpler or easier to understand?

But all is not as it appears in the banking industry. Banks are not in business to promote society’s well-being, to help people and businesses in need of cash, to be a secure custodian of our family and business fortunes, to bail out the federal government, or to assist in the growth of our nation. Banks are in business to make money. Pure and simple. Just like every other private-sector business. And when banks don’t make money, they fail. The big difference between bank failures and other business failures is that the greater the number of banks that fail, the harder it is to get loans at a reasonable price and the greater the risk of locking up our deposits for an indeterminate length of time.

The business community is rife with misconceptions about banks. Yet, because banks remain the cornerstone of business finance, it’s difficult to make intelligent financial decisions without a basic understanding of the banking industry and some of its problems.

-97-

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