(a) Ways by which the Central bank regulates the activities of Commercial banks are:
(i) Open market operation: Central bank uses treasury bills which it sells to commercial banks when cash flow is desired to be restricted and purchase them when cash-flow is to be enhanced.
(ii) Liquidity ratio: Central bank requires commercial banks to maintain certain proportion or ratio of deposit at the central bank to control their propensity to lend.
(iii) Directives: Sometimes, the central bank issues specific instructions to the commercial banks for lending and saving policies, e.g., commercial banks convert their short term loans to long-term or medium-term-loans, especially in a depressing economy.
(iv) Special deposit: This is the percentage of deposit which the central bank requires commercial banks to make with at times when the economy is experiencing inflation.
(v) Moral persuasion: This is an appeal by the central bank to rnmercial banks to restructure its lending activities.
(vi) Regulating the Bank rate: When the bank rate rises, it riffles a reduction in loans granted by commercial banks while the fall encourages the bank to give more loans.
Factors to be considered by d bank manager before granting a loan to customers are:
(i) Customers' ability to pay. How long the customer has been banking with it.
(iii) The credibility of the customer in terms of credit worthiness
(iv) The position of the customer's account.
(v) The worth of the customer's collateral security, referee and guarantor.
(vi) The amount and period of repayment expressed by the customer.
(vii) The viability of the business.