Scribd
Upload
57 views12 pages

Evolution of Banking

This document summarizes the evolution and functions of banking. It discusses the transition from early goldsmith establishments that stored people's gold and issued receipts, to fractional reserve banking where banks keep a percentage of deposits as reserves and lend out the rest. It also describes the role of central banks in monitoring commercial banks, controlling monetary affairs, and using tools like interest rates and open market operations to implement monetary policy and achieve economic stability.

Uploaded by

bsef21m008
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
57 views12 pages

Evolution of Banking

This document summarizes the evolution and functions of banking. It discusses the transition from early goldsmith establishments that stored people's gold and issued receipts, to fractional reserve banking where banks keep a percentage of deposits as reserves and lend out the rest. It also describes the role of central banks in monitoring commercial banks, controlling monetary affairs, and using tools like interest rates and open market operations to implement monetary policy and achieve economic stability.

Uploaded by

bsef21m008
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
You are on page 1/ 12

EVOLUTION OF

BANKING
BANKING AND MONEY SUPPLY
BANKING AND SUPPLY OF MONEY

• Banks are fundamentally business organized to earn profit for their owners
• Give services to their owners
• Receive payments from customers
• Basic assets; Reserves, loans, investment securities
• Liabilities; Checking deposits, savings and time deposits, net profit worth
TYPES OF BANKING SYSTEM
• COMERCIAL BANKING
• Early gold smith establishments
• Store people gold
• Receipt of keeping gold
• That receipt was also used as medium of exchange
• 100% RESERVE BANKING
• Banks saved 100% of their deposits
• Do nothing
• No influence on economy
FRACTIONAL RESERVE BANKING

• No need to keep 100% deposits


• Keep a fixed %age as deposit and use rest for further loans and investmnets
• Legally reserve upto 10%
• Total bank money is total reserve * required reserve ratio
• Process is known as CREDIT CREATION
MODERN BANKING

• Banks hold 10% of reserves at least


• Reserve ratio is set by Central bank
• M1 = Reserves + Reserve Ratio
• This reserves creates an enormous credit through deposits called credit Creation
• Transferring ones wealth into the Money
CENTRAL BANKING

• Organization that monitors commercial banks


• Control monetary affairs
• establishment in 1920
• During 19th century bankruptcy
• 1913 act for establishment of an organization to supervise working of commercial banks
• Control the credit
• Management of nation’s reserves
• Regulation of currency
DIFFERENCE BETWEEN CENTRAL AND
COMMERCIAL BANKING
• CENTRAL BANKING
• Public interest
• Don’t provide services to public
• Overall general banking
• CMERCIAL BANKING
• Profit earning
• Provide customer services to public
• Only own banking
BASIC GOALS OF CENTRAL BANK

• Economic stability
• Inflation control or price stability
• Recession or depression
• Output
• Exchange rate stability
STRUCTURE

• Board of governers
• Regional banks
• Head quarters
• Economists and bankers
• Decision making
CENTRAL BANK WORKING

• Definition
• A central bank is a government organization primarily responsible for the monetary affirs of the
economy
• FUNCTIONS
• Conducting M.P
• Financial stabilization
• Supervising banks
TOOLS

• Reserve ratio
• Interst rate
• Control of credit
• Open market operations
MONETARY POLICY

• Tools
• MS , I
• In depression; expansionary, loose money MS increase i decrease
• In inflation or boom; contractionary tight money MS decrease i increase
• Implication ultimately leads to a balanced growth and mainatined output

You might also like