WHAT IS COMMERCIAL BANKING?
A commercial bank is basically a normal high-street bank, called "commercial" to distinguish it from an investment bank. A commercial bank is otherwise known as a retail bank as its clients are ordinary retail customers like you and me.This is what people normally call a "bank".
Since the commercial and investment banks no longer have to be separate companies (Since the abolition of the Glass Steagal Act), some have used the term "commercial bank" to refer to banks which focus mainly on companies. We define commercial banking here as the activities in a bank which focus on both retail and commercial customers and companies.
In commercial banking the bank raises funds by collecting deposits from businesses and consumers via checkable deposits, savings deposits, and time (or term) deposits. It makes loans to businesses and consumers from these deposits. The commercial bank also buys corporate bonds and government bonds. Its primary liabilities are deposits and primary assets are loans and bonds.
Commercial banking refers to a bank, or a division of a bank, that mostly deals with the deposits and loans from corporations or large businesses as well as normal individual members of the public (retail banking).
Commercial banks engage in the following activities:
- Processing of payments by way of telegraphic transfer, internet banking or other means
- Issuing bank drafts and bank cheques
- Accepting money on term deposit
- Lending money by way of overdraft, installment loan or otherwise
- Providing documentary and standby letter of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures
- Safekeeping of documents and other items in safe deposit boxes
- Currency exchange
- Sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a “financial supermarket”.
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