In this chapter, we focus on three big functions that banks perform:
i. They evaluate business ideas to see to whom it’s worth lending.
ii. They spread an investment’s risk among many different projects.
iii. They make it easier for people to make payments through checks, ATMs, and wire transfers.
None of these functions are unique to banks. In the following anecdotes, is the person doing function i, function ii, or function iii?
a. Emmanuel donates a little money to five different charities, in the hopes that at least one of them will do some good in the world.
b. In Lorien’s family, she’s the one who specializes in deciding which bank everyone else in the family will use.
c. Popeye always has a little cash on hand, so he is always able to lend a little money to Wimpy and Olive Oyl at lunchtime.
d. George spends his time at the Carlyle Group deciding which companies are worth his investment partners’ dollars.
e. Scooter wants a good education, so he take a variety of different classes: some history, some economics, some physics.
f. Frances subscribes to Consumer Reports to decide which washing machine to buy.