why is credit creation considered one of the important function of commercial banks?
Answers
Answer:
credit creation considered one of the important function of commercial banks:
1) The creation of credit or deposits is one in all the foremost necessary functions of economic banks. Like alternative firms, banks aim at earning profits.
2) For this purpose, they settle for profit demand deposits and advance loans on credit to customers.
3) When a bank advances a loan, it doesn't pay the quantity in money. however it opens a accounting in his name and permits him to withdraw the desired add by cheques.
4) during this method, the bank creates credit or deposits.
5) Demand deposits arise in 2 ways: one, once customers deposit currency with industrial banks, and two, once banks advance loans, discount bills, offer bill of exchange facilities, and build investments through bonds and securities.
6) the primary forms of demand deposits are known as “primary deposits”. Banks play a passive role in gap them. The second forms of demand deposits are known as “derivative deposits”. Banks actively produce such deposits.