Application of the threshold value in the credit multiplier evaluation

Abstract

Multiplication of credit funds has always been a basic assumption in the work of credit organizations. In modern conditions, they occur with banks, funds and other institutions that deal with lending. The paper examines the problem of interdependence between the goals of the Central Bank and the commercial bank. The main goal of the Central Bank is to maintain price stability. However, if the country has a high share of foreign debt in the gross domestic product, the activities of the Central Bank are redirected to discouraging the growth of borrowing by banking institutions abroad. In order to prevent such borrowing, the Central Bank uses several instruments of monetary policy, among which the limit value in the rating of the credit multiplier stands out. The importance of the threshold value in the process of multiplying the value that is lent contributes to preserving the relationship between liquidity and profitability in the appropriate proportion. The lack of funds leads to illiquidity and its consequences, and in modern conditions, unprofitability also leads to the same outcome. In this paper, we will present the application of the threshold value in creating a bank credit portfolio.