{"id":5260,"date":"2019-02-14T08:42:05","date_gmt":"2019-02-14T03:12:05","guid":{"rendered":"http:\/\/astan.lk\/al_virtualclassroom\/?p=5260"},"modified":"2019-02-16T10:48:35","modified_gmt":"2019-02-16T05:18:35","slug":"commercial-banks-2","status":"publish","type":"post","link":"https:\/\/astan.lk\/al_virtualclassroom\/commercial-banks-2\/","title":{"rendered":"Commercial Banks"},"content":{"rendered":"<ul>\n<li>The special, very strong and prominent monetary institutions that act as financial intermediaries in the monetary system with profit motive are called commercial banks.<\/li>\n<\/ul>\n<h3>\u00a0<span style=\"color: #000000;\">Services provided by Commercial banks\u00a0<\/span><\/h3>\n<ul>\n<li>Accepting deposits<\/li>\n<li>Providing loans<\/li>\n<li>Long term loans<\/li>\n<li>Short term loans<\/li>\n<li>Services as an agent<\/li>\n<\/ul>\n<h3><span style=\"color: #000000;\">Common Utility services<\/span><\/h3>\n<ul>\n<li>Assisting in foreign banking activities<\/li>\n<li>Providing pawning services<\/li>\n<li>Providing safe keeping services<\/li>\n<li>Providing related services in foreign currency transactions<\/li>\n<\/ul>\n<h3><span style=\"color: #000000;\">Objectives of Commercial bank<\/span><\/h3>\n<ul>\n<li>To maintain liquidity<\/li>\n<li>To maintain profitability<\/li>\n<\/ul>\n<h3><span style=\"color: #000000;\">Statutory reserve ratio<\/span><\/h3>\n<ul>\n<li>According to the regulations of the Central Bank, commercial banks must maintain a certain percentage of its deposits as a reserve. This ratio is known as the statutory reserve ratio.<\/li>\n<li>The Central Bank changes this ratio from time to time.<\/li>\n<\/ul>\n<h3><span style=\"color: #000000;\">Excess Reserves<\/span><\/h3>\n<ul>\n<li>The amount of reserves exceeding the statutory requirement is called excess reserves.<\/li>\n<li>Excess reserve = Current money reserve \u2013 Statutory reserve.<\/li>\n<li>Excess reserve is determined based on the following factors:\n<ul>\n<li>The demand for loans<\/li>\n<li>Selection of commercial banks between liquidity and profitability<\/li>\n<li>Monetary policies of the Central Bank<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h3><span style=\"color: #000000;\">Deposit Multiplier<\/span><\/h3>\n<ul>\n<li>Deposit multiplier is the number of times of expansion of deposit or creation of credit with a demand deposit.<\/li>\n<li>Deposit multiplier is equal to the reciprocal of statutory reserve ratio.<\/li>\n<\/ul>\n<h3><span style=\"color: #000000;\">Liquidity &#8211; Profitability<\/span><\/h3>\n<ul>\n<li>When liquidity is maintained profitability decreases and when profitability is maintained, liquidity decreases.<\/li>\n<li>Since there is a clash between the two objectives, mentioned above, assets should be maintained in a balanced manner.<\/li>\n<\/ul>\n<h3><span style=\"color: #000000;\">Credit Creation<\/span><\/h3>\n<ul>\n<li>Generating more deposits than the existing deposits by lending the excess reserves of commercial banks is called Credit creation.<\/li>\n<li>Since only one bank functions in a monopolistic banking system, credit creation is possible. But it is impossible for a single bank in a banking system to create money.<\/li>\n<li>The credit creation of the commercial banking system is based on the following assumptions:\n<ul>\n<li>After making the initial deposit there is no inflow or outflow of money in the banking system<\/li>\n<li>All the borrowers deposit their total amount of loans in another commercial bank<\/li>\n<li>No bank maintains excess reserves<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h3><span style=\"color: #000000;\">There are limitations to credit creation as follows:<\/span><\/h3>\n<ul>\n<li>If people prefer to retain money with them, excess reserves of commercial banks will decline<\/li>\n<li>Credit creation decreases when banks prefer to maintain excess reserves<\/li>\n<li>Decreasing the demand for loans<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"<p>The special, very strong and prominent monetary institutions that act as financial intermediaries in the monetary system with profit motive are called commercial banks. \u00a0Services provided by Commercial banks\u00a0 Accepting deposits Providing loans Long term loans Short term loans Services as an agent Common Utility services Assisting in foreign banking activities Providing pawning services Providing [&hellip;]<\/p>\n","protected":false},"author":842,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[54,2691],"tags":[],"class_list":["post-5260","post","type-post","status-publish","format-standard","hentry","category-economics","category-unit-7-en"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Commercial Banks - Learning &amp; 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