tutor2u | Credit creation


Credit creation

Credit creation is the process by which commercial banks are able to create loans in the form of new deposits. Limits to credit creation by banks Market forces – these influence the number of profitable lending opportunities. Regulatory policies e.g. higher capital reserve requirements imposed by a central bank might limit lending Behaviour of consumers and businesses - e.g. decisions about how much of their debt to repay. Monetary policy – the level of monetary policy interest rates influences the demand for loans from households and businesses including demand for business loans and mortgage loans in the housing market.

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