1. CLASSIFICATION OF BANKS
&
CREDIT CREATION IN BANKS

2. CREDIT CREATION
DEPOSITS
PRIMARY DEPOSITS
DERIVATIVE DEPOSITS

3. MULTIPLE CREATION OF CREDIT
LOANS & ADVANCES
MONEY AT CALL & SHORT NOTICE
DISCOUNTING OF BILLS
INVESTMENTS

4. ILLUSTRATION: MAXIMUM EXPANSION OF LOANS & DEPOSITS
BANK
DEPOSIT
RETAINED AS RESERVE
LENT
1ST
10,000.00
2,000.00
8,000.00
2ND
1,600.00
6,400.00
3RD
1,280.00
5,120.00
4TH
1,024.00
4,096.00
5TH
819.20
3,276.80
6TH
655.36
2,621.44
7TH
524.29
2,097.15
8TH
419.43
1,677.68
9TH
335.54
1,342.14
10TH
268.43
1,073.70
TOTAL
44,631.21
8,926.25
35,704.92
ADDIT.L
5,368.79
1,073.15
4,295.08
GRAND TOTAL
50,000
40,000.00

5. DEPOSIT MULTIPLIER & CREDIT CREATION FORMULA
K= 1/r
K= Deposit multiplier
r= ratio of cash reserve to deposit

6. LIMITATIONS OF CREDIT CREATION
ADEQUATE CASH RESERVE
AVAILABILITY OF SECURITIES
QUANTITY OF MONEY IN CIRCULATION
ATTITUDE OF PEOPLE
POLICY OF THE CENTRAL BANK
NATURE OF BUSINESS CONDITIONS
LEAKAGES
BEHAVIOUR OF OTHER BANKS
USE OF CHEQUE

7. CLASSIFICATION OF BANKS
COMMERCIAL BANKS
INVESTMENT BANKS OR INDUSTRIAL BANKS
EXCHANGE BANKS
CO-OPERATIVE BANKS
LAND DEVELOPMENT BANKS
SAVINGS BANKS
CENTRAL BANKS

8. BANKING SYSTEM BRANCH BANKING UNIT BANKING GROUP BANKING CHAIN BANKING
CORRESPONDENT BANKING
GROUP BANKING
CHAIN BANKING
DEPOSIT BANKING
INDUSTRIAL BANKS
MIXED BANKING
INVESTMENT BANKING
NARROW BANKING
UNIVERSAL BANKING
LOCAL AREA BANK