What is Commercial Bank?
1252 reads · Last updated: December 5, 2024
The term “commercial bank” refers to a financial institution that accepts deposits, offers checking account services, makes various loans, and offers basic financial products like certificates of deposit (CDs) and savings accounts to individuals and small businesses. A commercial bank is where most people do their banking.Commercial banks make money by providing and earning interest from loans such as mortgages, auto loans, business loans, and personal loans. Customer deposits provide banks with the capital to make these loans.
Definition
A commercial bank is a financial institution that accepts deposits, offers checking account services, provides various loans, and offers basic financial products like certificates of deposit and savings accounts to individuals and small businesses. Most people conduct their banking at a commercial bank. Commercial banks earn money by providing loans such as mortgages, auto loans, business loans, and personal loans, and earning interest from these loans. Customer deposits provide the capital for banks to make loans.
Origin
The origin of commercial banks can be traced back to medieval Italy, where bankers began offering deposit and loan services. Over time, banking developed and expanded throughout Europe and other parts of the world. In the 19th century, with the advancement of the Industrial Revolution, commercial banks rapidly expanded globally, becoming a crucial part of the modern financial system.
Categories and Features
Commercial banks can be categorized into retail banks, corporate banks, and investment banks. Retail banks primarily serve individuals and small businesses, offering deposit accounts and personal loans. Corporate banks focus on providing financing and cash management services to medium and large enterprises. Investment banks mainly engage in securities underwriting and merger and acquisition advisory. Key features of commercial banks include offering diversified financial services, earning through interest rate spreads, and being subject to strict regulation.
Case Studies
A typical example is JPMorgan Chase in the United States, one of the largest commercial banks globally, offering a wide range of financial services, including retail banking, corporate banking, and investment banking. Another example is the Industrial and Commercial Bank of China (ICBC), one of the largest banks by market capitalization worldwide, providing comprehensive banking services globally and supporting China's economic development.
Common Issues
Investors using commercial bank services may encounter issues such as interest rate fluctuations, difficulties in loan approval, and high service fees. A common misconception is that all banks offer the same services, whereas, in reality, the services and fee structures of different banks can vary significantly.
