QS Study

Central Bank’s Functions as a banker of other banks

The Central bank is the main government-controlled bank in a country, which controls the financial affairs of the country by fixing main interest rates, issuing currency, supervising the commercial banks and controlling the foreign exchange rate.

The development of this bank has made a revolutionary change in the banking sectors. To make a strong monetary system central bank has established. To regulate the money market and all commercial banks, the central bank is employed by the government. This bank is always said to be the banker of other banks. Functions as a banker are given below:

Enlistments of Commercial Banks: To establish an entity of a bank, permission of central bank is mandatory. This bank examines the quality of banks to be enlisted and give permission to be enlisted.

Acting as a clearinghouse: It works as the clearinghouse of other banks. In daily activities, some kinds of transactions have created that cannot be cleared by commercial banks. Then this bank arranges clearinghouse and clears the transaction.

Lender of last resort: Generally this bank provides loans and advances to commercial banks. But v.hen other banks face the financial crisis and cannot continue their operations, in that crucial time central hank helps and supply fund for those banks to continue their activities.

Adviser and regulator: Central bank advice and regulates other banks to operate faintly. Central bank determines the sectors where commercial banks can operate. This bank provides information that is essential for commercial banks.

Related Study: