Economics • Banking & FinanceMedium
What does the term 'Narrow Banking' refer to?
A. Banks that cater exclusively to micro-enterprises and rural artisans
B. Banks that invest their funds predominantly in risk-free government securities rather than lending✓ Correct Answer
C. Banks that operate only in a specific geographical district or state
D. Banks that provide loans only against gold and sovereign securities
💡 Solution & Explanation
Narrow banking describes a conservative financial architecture where commercial banks invest almost entirely in sovereign government bonds rather than extending risky commercial loans. This model eliminates default risk on assets but reduces credit availability for private sector investments.
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