A commercial bank is a

financial institution Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...

which accepts deposits from the public and gives loans for the purposes of consumption and investment to make profit. It can also refer to a

bank A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets. Because ...

, or a division of a large bank, which deals with corporations or a large/middle-sized business to differentiate it from a

retail bank Retail banking, also known as consumer banking or personal banking, is the provision of services by a bank to the general public, rather than to companies, corporations or other banks, which are often described as wholesale banking. Banking ser ...

and an investment bank. Commercial banks include private sector banks and public sector banks.

History

The name ''bank'' derives from the

Italian Italian(s) may refer to: * Anything of, from, or related to the people of Italy over the centuries ** Italians, an ethnic group or simply a citizen of the Italian Republic or Italian Kingdom ** Italian language, a Romance language *** Regional It ...

word ''banco'' "desk/bench", used during the Italian Renaissance era by Florentine bankers, who used to carry out their transactions on a desk covered by a green tablecloth. 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 investment bank due to differences in bank regulation. After the 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

capital market A capital market is a financial market in which long-term debt (over a year) or equity-backed securities are bought and sold, in contrast to a money market where short-term debt is bought and sold. Capital markets channel the wealth of savers t ...

activities. This separation was mostly repealed in 1999 by the Gramm–Leach–Bliley Act.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 Sustainable development is an organizing principle for meeting human development goals while also sustaining the ability of natural systems to provide the natural resources and ecosystem services on which the economy and society depend. The de ...

of the economy. In this respect,

credit creation Money creation, or money issuance, is the process by which the money supply of a country, or of an economic or monetary region,Such as the Eurozone or ECCAS is increased. In most modern economies, money creation is controlled by the central bank ...

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, recurring account deposits, and fixed deposits. These deposits are returned whenever the customer demands it or after a certain time period. *Commercial banks provide loans and advances of various forms, Such as verdraftfacility, cash credit, bill discounting, money at call, etc. They also give demand and

term loan {{Unreferenced, date=March 2018 A term loan is a monetary loan that is usually repaid in regular payments over a set period of time. Term loans usually last between one and ten years, but may last as long as 30 years in some cases. A term loan usua ...

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 several times the original deposits are increased, which greatly improves the driving force of commercial banks to serve the economic development.

Regulations

In most countries, commercial banks are heavily regulated and this is typically done by a country's

central bank A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a country or monetary union, and oversees their commercial banking system. In contrast to a commercial bank, a central ba ...

. They will impose a number of conditions on the banks that they regulate such as keeping

bank reserves Bank reserves are a commercial bank's cash holdings physically held by the bank, and deposits held in the bank's account with the central bank. Under the fractional-reserve banking system used in most countries, central banks typically set minim ...

and to maintain minimum

capital requirements A capital requirement (also known as regulatory capital, capital adequacy or capital base) is the amount of capital a bank or other financial institution has to have as required by its financial regulator. This is usually expressed as a capital ad ...

Services by product

Commercial banks generally provide a number of services to its clients; these can be split into

core banking Core banking is a banking service provided by a group of networked bank branches where customers may access their bank account and perform basic transactions from any of the member branch offices. Core banking is often associated with retail ba ...

services such as deposits, loans, and other services which are related to payment systems and other financial services.

Core products and services

* Accepting money on various types of Deposit accounts * Lending money by

overdraft An overdraft occurs when something is withdrawn in excess of what is in a current account. For financial systems, this can be funds in a bank account. For water resources, it can be groundwater in an aquifer. In these situations the account is s ...

, and loans both secured and unsecured. * Providing transaction accounts * Cash management * Treasury management * Private equity financing * Issuing

Bank draft A banker's draft (also called a bank cheque, bank draft in Canada or, in the US, a teller's check) is a cheque (or check) provided to a customer of a bank or acquired from a bank for remittance purposes, that is drawn by the bank, and drawn on an ...

s and

Bank cheque A cashier's check (or cashier's cheque, cashier's order) is a check guaranteed by a bank, drawn on the bank's own funds and signed by a cashier. Cashier's checks are treated as guaranteed funds because the bank, rather than the purchaser, is respo ...

s * Processing payments via

telegraphic transfer Telegraphic Transfer or telex transfer, often abbreviated to TT, is a term used to refer to an electronic means of transferring funds. A transfer charge is often charged by the sending bank and in some cases by the receiving bank. Historically t ...

EFTPOS Electronic funds transfer at point of sale (EFTPOS; ) is an electronic payment system involving electronic funds transfers based on the use of payment cards, such as debit or credit cards, at payment terminals located at points of sale. EFTPOS t ...

, 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

safe deposit box A safe deposit box, also known as a safety deposit box, is an individually secured container, usually held within a larger safe or bank vault. Safe deposit boxes are generally located in banks, post offices or other institutions. Safe deposit ...

es to customers * To provide money transfer facility * To issue traveler's cheques * To act as referees * To accept various bills for payment: phone bills, gas bills, water bills * To provide various cards such as

credit card A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the o ...