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Borrowing on the open market rather than from banks has become more common for bigger businesses...

Borrowing on the open market rather than from banks has become more common for bigger businesses over time. Commercial banks, which take deposits which are insured by the federal government in the U.S., have wanted to meet this loss of loan demand by becoming involved in underwriting new securities issues or trading securities for their own benefit. Why do we worry about allowing them to do this?

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Loss of loan demand for a bank means that lesser income of the bank . Since deposits are liabilities , but loans given out by banks are assets . These loans earn interest income for the bank . So when demand for loans fall , income earning prospects of a bank falls . Underwritting security issues or trading securities for income , have lots of risks involved . If banks are unable to make profit out of it or it turns out to be a bad investment , then there are chances that the bank might collapse . Trading securities is subjected to market turmoils . So an economic depression can lower the assests of a bank to great extent .

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