Explain the process of credit creation.
Answers
Process of Credit Creation. The banking system as a whole can createcredit which is several times more than the original increase in the deposits of a bank. This process is called the multiple-expansion or multiple-creation of credit
Explanation:
Credit creation or money creation refers to banks ' ability to expand and contract demand deposits through more mortgages, investments, and acquisition processes. A commercial bank is a credit dealer. Based on cash deposits, it creates money. In addition, through its loan operations, it issues new money and creates credit or expands a country's monetary base.
Essentially, credit means getting the buying power now and agreeing to pay in the future at some point. Bank loans and advances are bank loans and advances. A bank keeps a certain portion of its deposits as a fixed fund to meet its depositors ' needs and lends the rest to earn revenue. The loan will be passed to the borrower's account. The bank loan produces an equivalent bank deposit. Credit creation also requires the extension of bank deposits.