It can also refer to a 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 investment bank. Commercial banks include private sector banks and public sector banks.
The name bank derives from the Italian 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 activities. This separation was mostly repealed in 1999 by the Gramm–Leach–Bliley Act.
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.
THUS, in absence of a charge ABSENCE OF A GREEN AND PUBLIC GOOD BENEFIT Which could be counter-inflationary and deficit-reducing. Or initially a credit creation charge from Eco-Fit retro-insulation could become a revenue-stream for local primary schools, libraries (from Eco-Fit Money, enveloping, GreenER Deal, etc. and eventually extended to reduced general taxation - that is, adjustable.. see followig reference
The story of the Commonwealth Bank of Australia By DJ Amos A well-referenced pamphlet or mini-book Veritas 1986 Describes how control was wrested from the original governor (and the board and officials) taking most of the revenue, particularly from credit or ‘mortgage money’ creation away from the public purse or Treasury revenue.
Particularly relevant to the post 2006 events (which earlier had led to decline of govt-created money to Mervyn King's “97% commercially-created” statement 2006/7 and Greenwood's Illustration of ’30 times UK property price “growth” in 30 years, that's 3000% compared to compounding 3% over 30 years if 3% year-on-year calculates up to be around 245% - so 'out' by a factor of 10.'
Greenwood adds: UK property regularly “grew” in numerical ‘value’ over the 3 decades (often 10% p.a. since I arrived in 1974/5 and bought my first house in 1976 (hence the 2006 ’30-times’ observation).
"This made me particularly interested in AUS/UK fluctuations and exchange rates £stg vs $AU as during work there I acquired another modest cottage and could compare rental levels and see exchange rates vary, suggesting a credit creation charge - at base rate, or one-third in the interim phase - to good effect (UK-Gov then claiming not to wish to interfere)."
Primary functions edit
- 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 term loans 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.
In most countries, commercial banks are heavily regulated and this is typically done by a country's central bank. They will impose a number of conditions on the banks that they regulate such as keeping bank reserves and to maintain minimum capital requirements.
Services by product edit
Commercial banks generally provide a number of services to its clients; these can be split into core banking services such as deposits, loans, and other services which are related to payment systems and other financial services.
Core products and services edit
- Accepting money on various types of Deposit accounts
- Lending money by overdraft, and loans both secured and unsecured.
- Providing transaction accounts
- Cash management
- Treasury management
- Private equity financing
- Issuing Bank drafts and Bank cheques
- Processing payments via telegraphic transfer, EFTPOS, internet banking, or other payment methods.
Other functions edit
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:
See also edit
- de Albuquerque, Martim (1855). Notes and Queries. London: George Bell. pp. 431.
- Ullah, Mohammad Ahsan (2020-01-17). "Bank Profitability in Bangladesh: A Comparative Study of a Nationalized Commercial Bank with That of a Private Commercial Bank". Journal of Management and Research. 6 (2): 138–170. doi:10.29145/jmr/62/060206. ISSN 2519-7924.
Further reading edit
- Brunner, Allan D.; Decressin, Jörg; Hardy, Daniel C. L.; Kudela, Beata (2004-06-21). Germany's Three-Pillar Banking System: Cross-Country Perspectives in Europe. International Monetary Fund. ISBN 1-58906-348-1. ISSN 0251-6365. Abstract
- Khambata, Dara (1996). The practice of multinational banking: macro-policy issues and key international concepts (2nd ed.). New York: Quorum Books. p. 320. ISBN 978-0-89930-971-2.
- Commercial Banks directory and guidelines Commercial Banks Archived 2014-01-08 at the Wayback Machine