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

  • Behavioral finance
    Behavioral finance is a subfield of finance that applies concepts from other social sciences ...
  • Securities for Loans
    As the enormous funds at the disposal of bankers are utilized chiefly in financing industrial ...
  • Secured loan
    A loan backed with some form of collateral; property, equipment, inventory, or accounts ...
  • Demand-pull inflation
    Demand-pull inflation is the inflation that results when policymakers pursue policies ...
  • Bank
    Bank is any financial institution that receives, collects, transfers, pays, exchanges, ...