A commercial bank is a financial institution 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, or a division of a large bank, which deals with corporations or 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 service ...
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 The Italian Renaissance ( it, Rinascimento ), a period in History of Italy, Italian history that covered the 15th and 16th centuries, developed a culture that spread across Europe and marked the transition from the Middle Ages to modernity. Pro ...
era by
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 The Great Depression was a severe worldwide economic depression that took place mostly during the 1930s, beginning in the United States. The timing of the Great Depression varied across the world; in most countries, it started in 1929 and l ...
, 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 This separation was mostly repealed in 1999 by the Gramm–Leach–Bliley Act.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.

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, including an
overdraft An overdraft occurs when money is withdrawn from a bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be direc ...
facility, cash credit, bill discounting, money at 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 several times the original deposits are increased, 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 A central bank, reserve bank, or monetary authority is an institution that manages the currency and monetary policy of a State (polity), state or formal monetary union, and oversees their commercial bank, commercial banking system. In contras ...
. 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

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 system A payment system is any system used to settle financial transactions through the transfer of monetary value. This includes the institutions, instruments, people, rules, procedures, standards, and technologies that make its exchange possible.Biago B ...
s and other financial services.

Core products and services

* Accepting money on various types of
Deposit account A deposit account is a bank account A bank account is a financial account maintained by a bank or other financial institution in which the financial transactions between the bank and a customer are recorded. Each financial institution sets the ...
s * Lending money by
overdraft An overdraft occurs when money is withdrawn from a bank A bank is a financial institution that accepts Deposit account, deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be direc ...
, and
loan In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that d ...
s 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

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 boxes to customers * To provide Electronic funds transfer, 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 cards and debit cards

See also

* Assets and Liabilities of Commercial Banks in the United States * Mortgage constant * Retail bank * Universal bank


Further reading

* * Commercial Banks directory and guideline
Commercial Banks
{{DEFAULTSORT:Commercial Bank Banks Banking terms