Relationship between the Central Bank and Commerical Bank

From the view point of economic activity, specially as a guardian of money market, central bank has following relationships with the commercial bank:

  • Statutory Reserve: It is obligatory for the commercial banks to maintain fixed portion of their deposit as a statutory reserve with the central bank.
  • Clearing House: Central Bank provides the clearing house facility to the commercial banks and thus a good relation creates between them.
  • Working Paper: Commercial Bank has to send weekly or monthly wording paper to the central bank. By analyzing the information of the working paper, central bank gives guidance to the commercial bank.
  • Information provider: Central Bank collects worldwide information of the money market, economic condition and other related information on banking.
  • Liquidity: Every commercial bank has to maintain specific portion of total deposit as liquid asset and central bank always monitors the liquidity position of the commercial bank to protect the client's interest.
  • Role as guardian: Central Bank acts as guardian of the commercial banks.
  • Lender of the last resort: Central Bank provides loan to the commercial banks.
  • Benefit of scheduling: Central Bank provides advice, guidance, financial support to the scheduled bank.
  • Bank-Client relationship: Bank provides loan to the clients and clients keep their savings in the bank as deposit.
  • Assistance: Central Bank implements its plan and policy through commerical banks.
  • Banker of all Banks: Central Bank is closely related with the commercial banks as banker of the other banks.

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