Though banks would like to have an unlimited capacity to create credit so as to add to their profit income, in practice they face several hurdles in doing so. These limitations manifest themselves in converting additional credit creation into a non-profitable activity. Thus, a bank would keep creating additional credit so long as:-
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Write a brief note on the term credit creation by Banks
The banks add to the aggregate means of payments available to the market. The contribution of banks to money supply is in the form of bank deposits. Broadly speaking, these deposits may be divided into two categories, namely cash deposits and credit deposits.
What are the limitations of credit creation?
Theoretically, the banking system can create unlimited amount of credit through expansion of deposits. However, in reality, the powers of banks to create multiple credit or deposits arc subject to a number of limitations as explained below:
What do you mean by the term credit creation ?
A bank differs from other financial institutions because it can create credit. Banks have the ability to expand their demand deposits as a multiple of their cash reserves. This is because of the fact that demand deposits of the banks serve as the principal medium of exchange, and, in this way, the banks manage the […]
A short story based on Hindu mythology regarding creation of Earth
This story is about creation, that is, how this planet came into being, are part of all great religion traditions. This one is about Brahma, the creator and Saraswati, the goddess of knowledge. Which this story is specially sacred by Hindus, it is also read with great interest by people all over the world as it […]