Courses : Intermediate Macroeconomics Lecturer : Frischa Adellia Semester : 4th Semester, 2022/2023 Sesion Banking System The banking system is a collection of financial institutions that act as intermediaries in providing financial services such as depositing money, making loans, and processing payments between individuals and companies. The banking system consists of commercial banks, central banks, and non-bank financial institutions such as credit cooperatives and insurance companies. Commercial banks are financial institutions that accept deposits from customers and provide loans to other customers. They also offer financial products such as credit cards, checking accounts, and time deposits. Commercial banks usually make a profit by offering loans at higher interest than the interest they pay on deposits. The central bank is the institution responsible for setting up a country's monetary system. The main task of the central bank is to issue and regulate the money supply, set interest rates, and maintain price stability in the economy. The central bank is also responsible for the supervision and regulation of other financial institutions such as commercial banks. Non-bank financial institutions such as credit cooperatives and insurance companies are also part of the banking system. Credit cooperatives are financial institutions owned and operated by their members. They usually offer financial products such as loans and savings accounts. Insurance companies, on the other hand, offer financial products such as life insurance, health insurance, and auto insurance. The banking system has an important role in the economy of a country. The role of banks in the economy is very important because they are one of the largest sources of funding for companies and individuals. In many cases, banks are the only place to obtain loans to start or expand a business. The following are some of the roles of banking in the economy: 1. Provide funding for investment: The bank helps collect funds from customers to invest in productive projects. This could include investing in manufacturing, infrastructure, or other development projects. In this case, the bank acts as a liaison between customers who have excess funds and parties who need funding. 2. Providing financial services to facilitate transactions: Banks facilitate financial transactions by providing services such as demand deposits, transfers and credit cards. These services make it easier for individuals and companies to make transactions, both domestically and internationally. 3. Providing services to maintain financial security: Banks provide services such as safe deposit boxes to store important documents and valuables. In addition, the bank also provides security services such as credit card protection systems and online transactions to maintain customer financial security. 4. Assist in risk management: The Bank also helps manage risk through insurance and financial derivative products. In this case, the bank acts as an advisor and a party that helps balance risks and profits in various financial transactions. 5. Influencing inflation and economic growth: The central bank has a very important role in regulating the rate of inflation and economic growth of a country through monetary policy. The central bank can adjust interest rates and the money supply to regulate inflation and economic growth. Overall, the role of banking in the economy is very important and varied. By providing funding, financial services, security services and risk management, banks help accelerate economic growth and create the financial stability needed to advance the economy. However, the banking system also has risks such as credit risk, market risk and operational risk. Therefore, banks need to carry out appropriate risk management to minimize these risks. In addition, regulators also need to ensure that financial institutions operate safely and stably to maintain the health of the financial system as a whole. In practice, the banking system can operate with various types of business models such as retail banks, investment banks and Islamic banks. Retail banks or traditional commercial banks are the most common type of bank and offer financial products and services to individuals and small companies. They usually have an extensive branch network to make it easier for customers to access financial services. Meanwhile, an investment bank is a financial institution that specializes in providing financial services to large companies and financial institutions. They assist companies in raising funds from the capital market, offer mergers and acquisitions services, and provide investment consulting. Investment banks may also be involved in trading securities, foreign exchange, and other financial instruments. Islamic banks, on the other hand, follow Islamic principles in their operations. Islamic banks offer financial products and services that comply with Islamic principles such as avoiding usury (interest), speculation, and unclear activities. Islamic financial products include mudharabah, murabaha and musharakah financing. In the banking system, banks play the role of collecting funds from customers and providing these funds in the form of loans to other customers. In addition, banks can also trade securities, both government and private, to generate profits. However, along with the development of technology, the banking system has also experienced changes with the existence of fintech (financial technology). Fintech is a financial institution that operates online and offers financial products such as online loans, digital wallets and digital payment services. Fintech has advantages in terms of ease and speed of operation, but also has risks such as data security risks and regulatory compliance risks. Overall, the banking system is an important element in a country's economy. They help provide funding for investments, provide financial services to facilitate transactions, and help influence inflation rates and economic growth. Therefore, the role of regulators in regulating and supervising the operations of financial institutions is very important to maintain the stability of the banking system and the economy as a whole.