From the discussion in problem 1, the banking system will serve more functions better than, say, a pure stock market could. Loans, securities, reserves. Loans are a source of income for the bank. Indeed, the primary reason for banks' existence is to finance the development of area businesses, as well as consumer purchases. Although these are the most risky of the banks assets, they are likely to generate most revenue.
Securities are necessary to diversify risk.
Treasury securities and investment-grade corporate securities will pay less interest than loans, but are less likely to default. Reserves are necessary to meet legal requirements and to ensure liquidity to meet the demands of depositors. Liquidity needs must be forecast by the financial institution. These needs are subject to the demands of the depositors along with the types of deposit. It is also subject to the interest and credit risk.