Give any two limitations of the commercial bank to create credit.

Asked by Topperlearning User | 21st Apr, 2015, 03:22: PM

Expert Answer:

Two limitations of the commercial bank to create credit are:

  1. Credit creation by commercial banks is based on the primary deposit. Hence, there should be a sufficient amount of cash to advance loans, but the central bank has complete control over the cash deposited by an individual. They decide the amount of cash to be held as reserves and the amount for advancing loans.
  2. Business persons can avail loans from the bank only when they have good securities to submit against a loan. If approved securities are unavailable, then the bank does not create credit as loans.

Answered by  | 21st Apr, 2015, 05:22: PM

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