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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