Macroeconomics: Functions of Commercial Banks

Introduction

• Discussion on various functions of banking in macroeconomics
• Primary and secondary functions of commercial banking

Primary Functions

1. Accepting Deposits

• Savings Accounts: Accepting secure money from the public
• Fixed Deposit Accounts: Depositing money for a fixed period, highest interest rate
• Current Accounts: Mainly for merchants, unlimited deposits and withdrawals
• Savings Bank Accounts: Encouraging small savings, limited withdrawals
• Recurring Deposit Accounts: Depositing a fixed amount every month

2. Loans and Advances

• Cash Credit: Borrowing up to a certain limit, based on security
• Overdraft: Additional loan for current account holders
• Discounting of Bills: Providing loans by discounting bills

3. Investment in Government Securities

• Purchasing securities issued by the government
• Funding for government projects

Secondary Functions

1. Agency Functions

• Collection and Payment: Collection of checks, rent, interest, etc.
• Purchase and Sale of Securities: Buying and selling shares and stocks for customers
• Agency for Trustees: Taking care of property
• Remittance of Money: Money transfer services
• Business Information: Providing economic information to customers
• Safe Custody: Securing customers' valuables
• Travelers' Checks and Letters of Credit: Facilities for travelers

Role in Economic Development

1. Capital Formation

• Converting savings into investment

2. Inducement to Innovations

• Providing loans to promote entrepreneurship

3. Effect on Interest Rate

• Controlling the interest rate to promote investment

4. Rural Development

• Providing loans in rural areas, especially related to agriculture

5. Boosting Consumer Demand

• Providing loans to boost demand for consumer goods

6. Monetary Policy and Organized Banking System

• Helping the government manage the economy

7. Employment Opportunities

• Promoting self-employment by offering loans at affordable rates

Conclusion

• Diverse functions of commercial banking and their role in economic development

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