-> commercial bank
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- A commercial bank, also called a business bank, is a financial intermediary which provides money market, checking, and savings accounts and accepts time deposits from customers. These banks are under the authority of national central banks. At present, there are over 6,500 FDIC-insured commercial banks in the United States, down from over 12,000 in 1990. They operated through some 89,170 offices and 82,641 branches in 2010.
Commercial banks offer business loans, instalment loans, and other loan types, issue bank checks and bank drafts, and process payments through internet banking, EFTPOS, telegraphic transfer, or other means. In addition, commercial banks provide standby and documentary letter of credit, cash management and private equity financing. A traditional role of commercial banks has been to underwrite securities, but today’s big commercial banks have their own investment bank arms which are involved in this. Commercial banks also provide guarantees and offer performance bonds, along with safekeeping of documents. Finally, unit trusts, insurance, and brokerage are also offered by commercial banks.
Commercial banks also work as retail banks and serve businesses as well as individual clients. Business entities have different needs and requirements than consumers. Some companies require that the bank accommodates a considerable volume of cash deposits and credit card payments. In general, commercial banks serve the needs of small and large businesses by providing a variety of services. These include savings and checking accounts, loans for capital and real purchases, letters of credit, and lines of credit. Other services offered to businesses are foreign exchange, lockbox services, and transaction and payment processing. Commercial banks accept deposits to corporate and personal accounts and then use the money to extend financing to businesses and individuals. This is the opposite of what investment banks do – they specialize in generating revenue through investment activities. Commercial banks extend various loans to their clients. To their individual customers, commercial banks give out loans for the purchase of homes, vehicles, and other personal property. Commercial banks also extend loans for debt consolidation and home improvements. Business entities obtain business loans for the purpose of purchasing operating supplies or financing a payroll. On the other hand, if a business aims at corporate restructuring or realignment, such business loans are more likely to be financed by an investment bank.
Commercial banks offer three main types of loans – unsecured loans, secured loans, and mortgages. Unsecured loans may be available under various marketing packages, including personal loans, credit card debt, bank overdrafts, and other loans. Unsecured loans are not guaranteed with collateral unlike the secured variety. Mortgage loans are a popular debt instrument, which is used to buy real estate. Many commercial banks did not specialize in real estate loans in the past, securing their earnings mainly from consumer and commercial loans. With changes in banking policies and laws, these banks play a more active role in home financing.
In addition to these financial products, commercial banks feature a variety of savings programs. They offer interest-bearing checking accounts, savings accounts, certificates of deposit, and other financial services.
Finally, commercial banks have some ancillary functions as well. These include agency and general services. Some banks deal with payment and collection of checks and buy and sell stocks. They may also offer SMS banking, online banking, advisory services, and more.
The distinction between investment and commercial banks is not always clear. The US banking sector functions with a clear division between both bank types. However, this is not the case everywhere around the world. Some big international banks offer investment and commercial banking services to their customers.