Loan Create Deposits and Deposits Create loan / Bank is the Factory of Credit Credit
How Commercial Bank Create Credit / Loan Create Deposits and Deposits Create loan / Bank is the Factory of Credit Credit
In this Article Explain the Definition of Credit Creation, Ways of Credit Creation, Process of Credit Creation, Formula and limitation of Credit Creation.
“Bank is the factory of creating credit”.
Credit creation is the multiple expansions of banks demand deposits. It is an open secret now that banks advance a major portion of their deposits to the borrowers and keep smaller part of deposits for payment to the customers on demand. Even then the customers of the banks have full confidence that the deposits lying in the banks are quite safe and can be withdrawn on demand. The banks exploit the trust of their clients and expand loans by much more time than the amount of demand deposits possessed by them. So, the tendency on the part of the commercial banks to expand their demand deposits as a multiple of their excess cash reserves is
called creation of credit.
Definition of Credit Creation, Ways of Credit Creation, Process of Credit Creation, Formula and limitation of Credit Creation.