What is a Commercial Bank?

Malcolm Tatum
Malcolm Tatum

Commercial banks are banking institutions that are geared more toward the lending of money to customers, rather than focusing on generating or raising money. Such a bank accepts deposits to personal and corporate accounts, and then uses the combined strength of the deposits to finance loans for individuals and businesses. This is in contrast to an investment bank, which focuses on generated revenue through investments.

Commercial banks serve as a storehouse for a region's wealth.
Commercial banks serve as a storehouse for a region's wealth.

The commercial bank will extend a number of different types of loans to customers. For individuals, the bank may loan funds for the purchase of personal property, such as vehicles or homes. A commercial bank may also extend a personal loan to an individual for home improvements or to consolidate a number of personal debt instruments. Loans of this type are usually extended with interest included, allowing the bank to cover the costs associated with extending the loan.

Commercial banks typically offer checking and savings accounts and can provide loans to individuals and small businesses.
Commercial banks typically offer checking and savings accounts and can provide loans to individuals and small businesses.

Business clients may also obtain loans from a commercial bank. The type of business loans that would be offered by a commercial institution would include funds to finance a payroll or to purchase operating supplies. However, if the funds were needed to effect a corporate realignment or restructuring, investment banks would more likely finance that type of business loan.

A commercial bank will also offer a wide range of savings programs for customers. Along with standard savings accounts, the commercial bank may also offer interest bearing checking accounts, certificates of deposit, and other savings strategies that are considered to provide a small but consistent return in exchange for doing business with the bank.

The distinction between the functions of a commercial bank and those of an investment bank are not always clear. While the banking industry within the United States tends to operate with a clear division between the two types of banks, this is not always the case across the globe. Often, large international banking institutions will provide both commercial and investment banking services to their clients.

A commercial bank may extend a personal loan to an individual for home improvements.
A commercial bank may extend a personal loan to an individual for home improvements.
Malcolm Tatum
Malcolm Tatum

After many years in the teleconferencing industry, Michael decided to embrace his passion for trivia, research, and writing by becoming a full-time freelance writer. Since then, he has contributed articles to a variety of print and online publications, including wiseGEEK, and his work has also appeared in poetry collections, devotional anthologies, and several newspapers. Malcolm’s other interests include collecting vinyl records, minor league baseball, and cycling.

You might also Like

Readers Also Love

Discuss this Article

Post your comments
Login:
Forgot password?
Register: