Question

Explain ' Bankers Bank' function of the central bank.

Answer 1

The Central Bank is the apex bank of all commercial banks and financial institutions in the country. It holds the same relationship with the commercial banks as a commercial bank holds with its customer. It accepts deposits from commercial banks and holds it as reserves for them.

The commercial banks are compulsorily required to hold a part of their deposits as reserves with the Central bank in accordance with the cash reserve ratio(CRR), In addition to the crr requirements, the commercial banks hold reserves with the central bank clearing their settlements with other banks and fulfil requirements if inter-bank transfers.