a

Commercial Bank

a commercial bank is a financial

institution that grants loans to its

customers it's able to lend money by

accepting deposits from other customers

that it lends out to these clients let's

take a look at how a bank makes money it

gets funds from its customers and pays

them a portion of interest on those

funds it then lens out funds to other

customers and charges them a rate of

interest the spread between the amount

that it pays the deposit customers and

the amount that it charges the borrowing

customers is the spread and the money

that it makes which is called interest

income this is the main way banks make

money they also charge fees such as

convenience fees or transaction fees

that allow them to earn money as well

let's look at the main functions that a

commercial bank provides they accept

deposits in the form of saving accounts

current accounts or term deposits that

means they take money from the customers

that want to store it and earn some

interest commercial banks create credit

facilities which are short-term and

medium-term loans that customers can use

the money to then invest in for other

purposes they have credit creation which

arises from deposit accounts which

borrowers can draw funds from and they

also serve important agency functions

for their customers which includes

things like paying checks and dividends

as well as insurance and trading

accounts for investments and other

securities let's look at the type of

loans offered by commercial banks

there's a standard bank loan where the

amount of money offered by a bank to the

borrower has a defined interest rate and

a fixed period of time there's cash

credit where the bank lends a client

money to go beyond their account limit

there's a bank overdraft where the

client can actually extend for a certain

period of time beyond the limit of their

account

finally credit cards are a form of

spending where customers can purchase

goods or services and pay for them later

with the actual cash in their accounts

commercial banks are regulated by

central bank

and other government organizations that

require the commercial banks to operate

within certain rules and limits this

includes capital reserves that help the

bank prevent insolvency or bank runs

which means they would run out of cash

and not be able to pay back their

customers in summary the main function

of a commercial bank is to accept

deposits and lend money out to

individuals and companies that need that

cash to grow the economy thank you for

joining us for this quick tutorial on

commercial banks