Definition

Derivative deposits

Deposits created from different underlying transaction of bank is called derivative deposits. The prime underlying transaction includes granting credit to clients in various forms. Therefore the banks in the process of granting credit create derivative deposits. The loans sanctioned and credited to the accounts of borrowers to create new deposits. Thus, it is true to say that “deposits create loans and loans create derivative deposits.”

Share it:  Cite

More from this Section

  • Social insurance
    Social insurance allows government insurance programs with certain characteristics that ...
  • Product liability insurance
    Coverage for losses for injuries caused by the use of a company’s products. ...
  • Active fund management
    Active fund management is an investment approach that purposely shifts funds either between ...
  • Forward purchasing
    Forward purchasing is a policy of purchasing relatively large quantities to fill needs ...
  • Banking
    Generally all the activities of a bank is called banking. In a broader sense, banking ...