Question

Explain the 'bankers' bank" function of the central bank.

Answer 1

Central bank is the apex bank of all the commercial banks and financial institutions in the country. It holds the same relationship with the commercial banks as commercial bank holds with its customer. The central bank accepts deposits from the 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 for clearing their settlements with other banks and to fulfil their requirements of inter-bank transfers.