Lesson 1
Introduction
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Banks, which were first created in primitive form by goldsmiths hundreds of years ago, have evolved into central economic institutions that manage the allocation of resources, channel information about productive activities, and offer the public convenient investment vehicles. Although there are several types of banking institutions, commercial banks are the largest and most important in the banking system. Banks are designed to address three significant problems in capital markets: adverse selection, moral hazard, and liquidity. Government support and regulation, as well as rating agencies help to ensure that investors trust the banks with which they have relations. Shiller, Robert J. ECON 252, Financial Markets (2008), Spring 2008. Yale OpenCourseWare: Economics, Accessed 22/9/14 http://oyc.yale.edu/economics/econ-252-08/lecture-13 License: Creative Commons BY-NC-SA


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