Theory question 106
Banking(a) List five types of banks.
(b) Explain five measures that the central bank could use to regulate the activities of other banks.
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(a) Any five: central bank; commercial banks; merchant banks; development banks; mortgage banks; microfinance banks; cooperative banks; agricultural banks; savings banks; non-interest (Islamic) banks.
(b) Any five, explained: open market operations (buying/selling treasury bills to change the money banks hold); bank rate/monetary policy rate (raising or lowering the rate it lends to banks to make credit dear or cheap); cash reserve ratio (percentage of deposits banks must keep with it); liquidity ratio (proportion of assets banks must hold in liquid form); special deposits; selective credit controls/directives (telling banks which sectors to lend to); moral suasion (persuading banks); licensing, supervision and inspection of banks.
Explain how each measure increases or reduces banks' ability to lend.