View source for Finance:Commercial bank

{{Short description|Financial institution}}
{{Banking |banks}}

A '''commercial bank''' is a [[Finance:Financial institution|financial institution]] which accepts [[Finance:Deposit|deposits]] from the public and gives [[Finance:Loan|loan]]s for the purposes of consumption and [[Finance:Investment|investment]] to make [[Finance:Profit (economics)|profit]].

It can also refer to a [[Social:Bank|bank]] or a division of a large bank which deals with corporations or a large or middle-sized business, to differentiate it from a retail bank and an [[Finance:Investment bank|investment bank]]. Commercial banks include private sector banks and [[Social:Public sector|public sector]] banks.

==History==
The name ''bank'' derives from the [[Social:Italian language|Italian]] word ''banco'' "desk/bench", used during the [[History:Italian Renaissance|Italian Renaissance]] era by [[Place:Florence|Florentine]] bankers, who used to carry out their transactions on a desk covered by a green tablecloth.<ref>{{cite book  | last = de Albuquerque  | first = Martim  | title = Notes and Queries  | publisher = George Bell  | year = 1855  | location = London  | pages = [https://archive.org/details/notesandqueries00albugoog/page/n427 431]  | url = https://archive.org/details/notesandqueries00albugoog }}</ref> However, traces of banking activity can be found even in ancient times.

In the United States, the term commercial bank was often used to distinguish it from an [[Finance:Investment bank|investment bank]] due to differences in bank regulation. After the [[Finance:Great Depression|Great Depression]], through the Glass–Steagall Act, the U.S. Congress required that commercial banks only engage in banking activities, whereas investment banks were limited to [[Finance:Capital market|capital market]] activities. This separation was mostly repealed in 1999 by the [[Finance:Gramm–Leach–Bliley Act|Gramm–Leach–Bliley Act]].

==Role==
The general role of commercial banks is to provide financial services to the general public and business, ensuring economic and social stability and sustainable growth of the economy.

In this respect, credit creation is the most significant function of commercial banks. While sanctioning a loan to a customer, they do not provide cash to the borrower. Instead, they open a deposit account from which the borrower can withdraw. In other words, while sanctioning a loan, they automatically create deposits.

===Primary functions===
*Commercial banks accept various types of deposits from the public especially from its clients, including saving account deposits and fixed deposits. These deposits are returned whenever the customer demands it after a certain time period.
*Commercial banks provide loans and advances of various forms, Such as [overdraft] facility, cash credit, bill discounting, money  call, etc. They also give demand and [[Finance:Term loan|term loan]]s to all types of clients against proper security. They also act as trustees for wills of their customers etc.
*The function of credit creation is generated on the basis of credit and payment intermediary. Commercial banks use the deposits they absorb to make loans. On the basis of check circulation and transfer settlement, the loans are converted into derivative deposits. To a certain extent, the derivative funds of are increased by interval times the original deposits which greatly improves the driving force of commercial banks to serve the economic development.<ref>{{Cite journal|last1=Ullah|first1=Mohammad Ahsan|date=2020-01-17|title=Bank Profitability in Bangladesh: A Comparative Study of a Nationalized Commercial Bank with That of a Private Commercial Bank|journal=Journal of Management and Research|volume=6|issue=2|pages=138–170|doi=10.29145/jmr/62/060206|issn=2519-7924|doi-access=free}}</ref>

==Regulations==
{{main |Finance:Bank regulation}}
In most countries, commercial banks are heavily regulated and this is typically done by a country's [[Finance:Central bank|central bank]].  They will impose a number of conditions on the banks that they regulate such as keeping [[Finance:Bank reserves|bank reserves]] and to maintain minimum capital requirements.

==Services by product==
Commercial banks generally provide a number of services to its clients; these can be split into [[Finance:Core banking|core banking]] services such as deposits, loans, and other services which are related to [[Finance:Payment system|payment system]]s and other financial services.

===Core products and services===
* Accepting money on various types of [[Finance:Deposit account|Deposit account]]s
* Lending money by [[Finance:Overdraft|overdraft]], and [[Finance:Loan|loan]]s both secured and unsecured.
* Providing [[Finance:Transaction account|transaction account]]s 
* [[Finance:Cash management|Cash management]]
* [[Finance:Treasury management|Treasury management]]
* [[Finance:Private equity|Private equity]] financing
* Issuing Bank drafts and Bank cheques
* Processing payments via [[Finance:Telegraphic transfer|telegraphic transfer]], [[EFTPOS]], internet banking, or other payment methods.

===Other functions===
Along with core products and services, commercial banks perform several secondary functions. The secondary functions of commercial banks can be divided into agency functions and utility functions.

Agency functions include:
* To collect and clear cheques, dividends, and interest warrant
* To make payments of rent, insurance premium
* To deal in foreign exchange transactions
* To purchase and sell securities
* To act as the trustee, attorney, correspondent and executor
* To accept tax proceeds and tax returns

Utility functions include:
* To provide [[Finance:Safe deposit box|safe deposit box]]es to customers
* To provide [[Finance:Electronic funds transfer|money transfer]] facility
* To issue [[Finance:Traveler's cheque|traveler's cheque]]s
* To act as referees
* To accept various bills for payment: phone bills, gas bills, water bills
* To provide various cards such as [[Finance:Credit card|credit card]]s and [[Debit card|debit card]]s

==See also==
* Assets and Liabilities of Commercial Banks in the United States
* [[Finance:Glass–Steagall legislation|Glass–Steagall legislation]]
* [[Finance:Investment banking|Investment banking]]
* [[Finance:Mortgage constant|Mortgage constant]]
* Retail bank
* [[Finance:Universal bank|Universal bank]]

==References==
{{reflist}}

==Further reading==
* {{cite book |author= Brunner, Allan D.|author2=Decressin, Jörg |author3=Hardy, Daniel C. L. |author4= Kudela, Beata  |title=Germany's Three-Pillar Banking System: Cross-Country Perspectives in Europe |publisher=[[Organization:International Monetary Fund|International Monetary Fund]] |date=2004-06-21 |issn= 0251-6365 |isbn= 1-58906-348-1}} [http://www.imf.org/external/pubs/nft/op/233/op233.pdf Abstract]
* {{cite book |author=Khambata, Dara |title=The practice of multinational banking: macro-policy issues and key international concepts |edition=2nd |publisher=Quorum Books |location=New York |year=1996 |pages=320 |isbn=978-0-89930-971-2}}
* Commercial Banks directory and guidelines [http://commercial-banks.net/ Commercial Banks] {{Webarchive|url=https://web.archive.org/web/20140108172309/http://commercial-banks.net/ |date=2014-01-08 }}


{{DEFAULTSORT:Commercial Bank}}
[[Category:Banks]]
[[Category:Banking terms]]

{{Sourceattribution|Commercial bank}}