CHAPTER TWO: LITERATURE
REVIEW
Introduction
This chapter was detailed with the review of the available
literature related to the research under study. The review of the relevant
literature considered various sources of information like text books, journals,
magazines and internet. Thus, this chapter traces the literatures on the way
Commercial Banks can contribute in promoting trade in rural areas.
2.1. Commercial Banks
According to BLACK C., (2006:32) Commercial Bank is a bank
that offers banking services to the public and to businesses. Commercial banks
are the most common type of banks today. They provide a very wide range of
services to customers. Because of the wide range of services they provide, they
are useful to business people.
Commercial banks are financial institutions that accept demand
deposits and make commercial loans to the government and private individuals.
Commercial banks are the most important financial intermediaries serving the
public today. The general idea behind commercial banks is that, they are
private, profit seeking depositor institutions serving business and
non-business customers with deposits, current account and credits. They
normally perform this duty by accepting deposits from customers and allowing
writing cheques and lending money to individuals, business, non-profit making
organizations, government and other organizations Peter, S. Rose (1993:23).
HASLEM (1985:4) argues that commercial banks lie at the heart
of financial system. Until recently, they have unique in the issuance of
deposit liabilities which are payable upon demand, usually by cheque. These
checking accounts deposits have traditionally constituted the major portion of
the country's money supply. The profit seeking activities of banks and central
bank interact to determine the supply of loanable and investable funds in
banking system. Commercial banks may create money through their lending
activities.
According to Frederic S. (2004:34), Commercial Banks
are financial intermediaries raise funds primarily by issuing
checkable deposits (deposits on which checks can be written), savings deposits
(deposits that are payable on demand but do not allow their owner to write
checks), and time deposits (deposits with fixed terms to maturity). They then
use these funds to make commercial, consumer, and mortgage loans and to buy
U.S. government securities and municipal bonds. There are slightly fewer than
8,000 commercial banks in the United States, and as a group, they are the
largest financial intermediary and have the most diversified portfolios
(collections) of assets.
By almost any measures commercial bank is the most important
financial intermediary serving the public today. For example, commercial banks
hold more assets than any other financial institution. Banks also represent a
vital link in the transmission of government economic policies (particularly
monetary policy) to the remainder of the economy. When bank credit is scarce
and expensive, spending in the economy slows and unemployment usually rises.
Fluctuations in the availability and cost of bank credits also have profound
implication for inflation. This is not surprising because bank deposits
represent the most significant component of the money supply used by the
public, and changes in money growth are highly correlated with changes in the
prices of goods and services in the economy (Rose et al; 1993:147).
Commercial bank can be public when it belongs to the State or
private when it belongs to individuals.
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