3. Please look up sources on the reason for the existence of financial institutions today.

MANAGEMENT OF FINANCIAL INSTITUTIONS: With Emphasis on Bank and Risk

Management By MEERA SHARMA PHI Learning Pvt. Ltd., 2008

Diamond (2007) draws the following conclusions from this analysis: Banks create
demand deposits to provide investors with liquid assets. When there is a demand
for more liquid assets from investors or entrepreneurs, demand deposit contracts
serve as a means for quick access to liquidity. Demand deposits work very well
when investors forecast that banks will survive, but can cause severe damage if
investors lose faith in banks. There is scope for banks to write more refined
contracts, such as deposits with suspension of convertibility of deposits to cash. In
addition, there may be a role for government policies to eliminate self-fulfilling runs
on banks. The government plays a role because its taxation authority is not
available to private firms. (page 199).
4 Douglas W. Diamond and Philip H. Dybvig, 1983,Bank Runs, Deposit Insurance,
and Liquidity, Journal of Political Economy 91 (5): 40119; Douglas W. Diamond,
Banks and Liquidity Creation: A Simple Exposition of the Diamond-Dybvig Model,
Federal Reserve Bank of Richmond, Economic Quarterly 93 (2),Spring 2007: 189
200 5 Milton Friedman and Anna Schwartz,A Monetary History of the United States
1867-1960, (Princeton, NJ: Princeton University Press, 1963). 6 Jens Dick-Nielson,
Peter Feldhtter and David Lando (2012), Corporate bond liquidity before and after
the onset of the subprime crisis, Journal of Financial Economics, 103:471-492