Early banking system served mainly as depositors for funds, while the more modern system has considered the supplying of credit their main purpose. A Bank not only accepts money or deposits but also lends money and creates its own credit, Crow her has defined a bank as “a dealer in debts- his own and of other people.” Sawyer’s states, “We can define a bank as an institution whose debts (bank deposits) are widely accepted in settlement of other peoples debts to each other”
The class of financial institutions called commercial banks has one important characteristic that distinguishes it from all other kinds of financial institutions. This important distinction is that it alone can hold deposits to be drawn upon by check; it has the power to create and destroy money, within limits, through the use of loans and demand deposits. Commercial banks lend money by creating demand deposits and retire loans by canceling demand deposits.
The functions of modern commercial banks are numerous and overlap with those of such other financial institutions. They are most sharply differentiated from other financial institutions by the character of their principal liabilities. Only commercial banks hold demand deposits, which constitute the most important component of money supply, thus banks are unique among non-governmental institutions as administrators of demand deposits and as money issuers. They influence not only size of the money stocks but also the allocation of funds and thus the direction and use of resources within the system as a whole.
Historical Development of Banking Business in Bangladesh
For an economy, money is like as blood in a body and a bank may be compared with an artery system of a body. Modern banking system is not a consequence of an accident, but a result of a gradual systematic development.
After independence, there was serious crisis in banking sector of Bangladesh. Out of 36 scheduled banks, only two banks had there head office in... [continues]
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