“Deposit creates credit and credit creates deposit” how it is possible
According to Economist Hartly Withers, “Each and every loan creates a deposit”. The above statement is explained below:
Conditions required creating loan deposit
1. There should be more than one commercial bank and numerous branches. That is banking facilities should be at the door of the people. 2. There should be sufficient supply of money in the market. 3. The citizens must be familiar with banking transaction.
4. Central bank should have effective and dynamic credit system policy.
Techniques of creating loan deposit
A commercial bank generally creates loan deposit in two ways –
1. Deposited created from loans
2. Loans created form deposits
These are described below:
1. Deposits created from loan When banks provide loans to a person or business entity, it doesn’t provide it in cash. Bank asked the loan taker to open an account with the bank and credit the sanctioned amount to that account. Afterward the borrower draws the amount through cheque. Thus in this way commercial Bank creates deposit through loan. Its techniques are
a) Granting call money or short term loan
b) Sanctioning advances, cash credit and bank overdraft
2. Loan created from deposit
When people keeps deposit in a bank that is treated as primary deposit .Bank creates loan from these money. Without preserving total deposit money in cash from, banks keep a certain portion of that amount in liquid form and the rest supply as loan to others.

3. Other ways to create loan deposit a) Purchase of assets
When banks purchase assets, it doesn’t pay the price in cash. The bank pays through crossed cheque. Thus seller is bound to deposit amount at any bank and bank deposit increases.
b) Discounting bill of exchange Liabilities | Taka | Assets | Taka | Deposits:Badhan Mustary 10000Md. Rezaul