What Is a Commercial Bank?
Commercial Banks are a very important part of our financial system. Every single entity in the financial market directly or indirectly dependent on it. And in this discussion, we will evaluate every single detail regarding a commercial bank which will help you understand it better. Now let’s start this discussion with “commercial bank definition”.
Commercial Bank Definition
A commercial bank is a financial establishment that runs on profit. It offers many services like granting loans, accepting deposits, providing flawless electronic transfer of funds, providing overdraft facilities and many other things. In other words, it is a place where common people can deposit their savings and earn money whereas the bank can use that money to provide loans to the people and earns money. Now we will discuss the types of commercial banks to understand it further.
Types of Commercial Banks
Because of the recent crisis in the financial market, the government has introduced new regulations in this sector, which has created new types of commercial banks. In the United States, there are generally four types of commercial banks available. Now we will discuss them one by one.
As we have discussed in the commercial bank definition it is a profit-based organization which provides services like making loans and taking deposits from the people. Some commercial banks focus on the common customers while some focus on the big institutions. The customers in commercial banks are insured by the FDIC.
Credit Unions and Cooperatives
Unlike the commercial banks, the credit unions and cooperatives are a non-profit organization, which serve people of same interest. So, unlike the commercial banks, they are not open to all people. This type of banks exists in places like college and organizations where it serves the role of a helper. The main objective of this kind of banks is to provide support to their community. The Credit Unions and Cooperatives are insured by NCUA https://www.ncua.gov/.
Savings and Loan Associations
Savings and Loans Associations or the S&Ls are a kind of a bank which gives residential and single-family house loans. The S&Ls generally offer savings and one-time deposits. The S&Ls are insured by the Savings Association Insurance Fund or SAIF https://www.saif.com/.
The Agricultural Banks are very much like the Commercial Banks but instead of instead of providing loans to the people it concentrates on the farmers. It is actually very hard to finance for an agricultural activity because one must have the idea of commodity and fertilizer prices along with other agricultural related things.
So, in the above discussion, we have discussed the types of commercial banks. But if you want to understand what is a commercial bank you also have to understand the functions of it.
Functions of Commercial Banks
One of the most significant functions of commercial banks is to take deposits. The whole commercial banking system relies on public deposits. There are however two types of deposit methods available
Demand Deposits: In this type of deposits you can withdraw your money without any former notice to the bank.
Time Deposits: This kind of deposits is made for a particular period of time. The banks pay more interest in this kind of deposits.
The Commercial Banks make most of its income from making loans which makes it one of the most significant functions of commercial banks. The Commercial Banks use the deposited amounts to grant loans to the individuals and businesses.
Providing Locker Facilities
The Commercial banks also provide locker facilities to its customers, so they can put their valuable assets in it. It also minimizes the risk of theft at homes.
Transferring funds is another important function of Commercial Banks. The Banks can send funds to other banks by electronic or telephonic transfer.
There are many other functions of commercial banks which are also very important, but the above discussion is enough to get the main idea of it.
Now that we have covered the idea of what is a commercial bank it is time to give you a few examples of commercial banks.
Examples of Commercial Banks
- JPMorgan Chase & Co.: JPMorgan is the topmost commercial bank in the US with an asset of more than $2.5 trillion.
- Bank of America: BOA is another important commercial bank in the US with an asset of more than $2.20 trillion.
- Wells Fargo & Co.: It has a total asset value of more than $1.90 trillion and is one of the finest examples of commercial banks in America.
- Citigroup Inc.: Citigroup has a long history in Commercial Banking with an asset value of more than $1.8 trillion it is currently the fourth largest commercial bank in America.
In above we have discussed What is a commercial bank and with a complete commercial bank definition which I think is enough to give you a proper idea about this topic. So, read this article and increases your financial wisdom.