Describe the dynamic between financial stability, economic welfare, and profit maximizing banks.

Expert Solution

Financial stability, Economic welfare & Profit maximizing banks
Financial stability can be defined as the ability or the strength of a system or institution to manage economic risks, enhance economic processes and to bear economic shocks. High financial stability provides the system or the firm to be confident over its functions and to perform well. The condition may change according to the time because of different elements in the process. Financial stability can leads to efficient allocation of resources and encourage economic activities to perform smoothly. The successful allocation of resources and funds can improve the economic welfare. An institution or firm with better financial stability can provide and enjoy better economic welfare.
Banks through enjoying economic stability can easily accepts deposits and can lend the money as an investment. As for banks, the fund they lend is their asset; they can earn better profit by giving more loans from the financial stability they enjoy. This also can increase economic welfare of the system itself by the ability to meet every economic need. Financial stability can attain confidence from the public for the banks which enhances the deposits which in turn shifts as their asset. Increased confidence can increase the financial stability then the economic welfare. Financial stability helps to invest on assets and gain profit while the same can attain better economic welfare.

Rahul Sunny answered 2 years ago

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