Commercial Bank and Checking Accounts

How do commercial banks create money?


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2011-01-23 13:59:53
2011-01-23 13:59:53

Commercial Banks make profit and generate revenue by two ways:

  1. By charging you a fee for the services they provide you
  2. By lending the money you have deposited into your account, to other loan customers and getting an interest on the same.

Interest income is the highest revenue and profit generator for any bank.


Related Questions

we take/borrow money from the commercial banks and the commercial banks take/borrow money from the reserve bank

Banks create money by issuing loans and opening checking accounts.

Banks can create money just by saying so (out of thin air) and lend this money to borrowers.

Banks do not create money. They store it. The government prints money.

The main thing the Fed does is that it is the Bank that Banks deposit their money in.

Your grasp of economics and commerce is flawed. Banks do make a profit on the money they lend, a great deal of it. It is called interest. Nor do banks 'create' money.

They mobilize huge funds from the public, business houses and in turn extend loan to industries, government, thus generating money in the national economy.

Do you mean commercial banks or investment banks?

Banks do not create the money they loan out. They get it from deposits and fees and such then give loans to those who deserve it.

Money is CREATED by governments, not banks. They store money. Banks also EARN money by loaning money to people. People pay the banks back more money than they borrow (interest)

Not part of the nation's money supply

process of payment, common money market,issue money

No, it is not. A commercial bank uses deposits and loans to create money out of thin air. A commodity bank uses real money and cannot create money from nothing.

With Cash Reserve Ratio the Commercial Banks can keep money in Central Bank. So that amount of money keeps intact coz the commercial bank do not retain that with themselves. So if in a case the commercial banks need money they can easily opt for the aforesaid invested money with central bank.

When banks have any shortage of funds, they can borrow it from Reserve Bank of India or from other banks. The rate at which the RBI lends money to commercial banks is called repo rate. The Reserve Bank parks its money with other banks at the reverse repo rate

Commercial banks can be classified based on who owns them. they are:Public commercial banks - The banks that are owned by the governmentPrivate commercial banks - The banks that are owned by private individuals or companiesForeign commercial banks - The banks that are owned by individuals or companies that are incorporated outside the country where the bank operates

by making loans and other products for consumers

A commercial bank is a financial institution which lends out money to potential borrowers and implement plans on behalf of the central bank while Anon commercial bank is a financial institution that lends out money on long term basis and does not carry out credit creation

what are the problems that commercial banks face

Total number of private commercial banks is 36 including 8 Islamic commercial banks. And there are 9 foreign commercial banks in Bangladesh.

Commercial banks offer services and facilities for people to manage their money, seek lines of credit, and invest the in the stock market. This allows the financial market run when money is circulated.

commercial banks like bananas and central banks dont.

The 8,700 commercial banks, which are about 98% of all banks in the country, hold the vast majority of demand deposits held by all institutions (banks, thrifts, credit unions). Their non-institutional competition is primarily money-market accounts. As the name implies, commercial banks make the majority of commercial loans, but also make more than 20% of all consumer loans.

One must first understand the regulatory policies that are placed on banks. Private commercial banks multiply the quantity of money placed in circulation by the Federal Reserve by using higher spending and tax cuts.

Commercial banks obtain their funding in many ways. They may take up government bonds from the Central Bank, borrow money from other commercial banks, or source it from customers deposits. Shareholders funds are also used to make investments.

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