Question

List any five factors of cash (Til cash) requirement of a commercial bank

Answer 1

Limitation # 1. Cash Reserve Ratio:

The credit creation power of banks depends upon the amount of cash they possess.

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The larger the cash, the larger the amount of credit that can be created by banks.

Thus, the bank’s power of creating credit is limited by the cash it possesses.

Limitation # 2. Availability of Adequate and Proper Securities:

If proper securities are not available with the public, a bank cannot create credit. As Crowther has written—”the bank does not create money out of thin air, it transmutes other forms of wealth into money.”

Limitation # 3. Keeping of Reserve with the Central Bank:

Every affiliated and attached bank has to keep certain reserves with the Central Bank of the country. The Central Bank keeps on changing the percentages of these reserves from time to time. When the Central Bank increases the percentages of these reserves, then the power of the commercial banks to create credit is reduced in the same proportio