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Process of credit creation by commercial …

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Process of credit creation by commercial banks

Posted by Nitasha Chawla 7 years, 4 months ago

CBSE > Class 12 > Economics

1 answers

Yadwinder Singh 7 years, 4 months ago

suppose all commercial banks have deposits of rs, 10000 and the banks by their historical experience say that no person withdraw the deposits one day so the make rsserve of 10% on deposits and lend otber amont as loan. 10000*10%=1000 10000-1000=9000 So now bank can lend rs. 9000 as loan to the borrowers and now total liability of bank is rs.19000 the reserve amount is 1900 and rs. 8100 again bank lend loan. This process will be followed by banks upto the time the bank can lend loan of rs. 100000 and in this way bank creates credit. Bank created credit of rs. 100000 from rs. 10000

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