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# Bank Credit Extension

## Definition

The practice of banks providing credit to merchants through various means including discounting bills, granting cash accounts, and issuing notes. This extension of credit facilitates trade but must be carefully managed to avoid instability.

## Source Chapter

Book II, Chapter 2

## Context

Smith examines how banks extend credit to merchants and the benefits and risks of such extension. He analyses the appropriate limits of credit extension and the consequences of excessive lending.

## Economic Domain

Exchange

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