A commercial bank is an entity whose economic activity is financial intermediation. That is, it captures deposits from the public, directing those resources to the granting of loans, with the aim of obtaining a profit.
In other words, a commercial bank receives capital from individuals or companies looking to save. In this way, funds are raised to later be used for granting loans.
These banks can generate profits due to the interest rate they charge for the financing granted. Thus, they not only get back the borrowed money, but also obtain additional income.
Commercial bank activity
The usual activity of a commercial bank goes through the opening and maintenance of savings accounts or checking accounts. Through these products, customers make deposits, with the expectation of keeping their money safe and achieving a small return.
Likewise, these banks grant credits of all kinds (such as mortgage loans) and offer more sophisticated financial products, such as investment funds or private pension plans.
Importance of commercial banks
The importance of commercial banking lies in the fact that it is basic when it comes to understanding the functioning of most of the economy of families and companies.
Through these banks, the surpluses of the saving agents can reach those who require financing. If this did not happen, many business projects, for example, could not be undertaken.
Main functions of a commercial bank
These are the main functions of commercial banking:
- Management of multiple domestic transactions and transfers, such as direct debits.
- Collection of certain taxes or official fees.
- Issuance of checks and the like.
- Administration of your clients' deposits.
- Granting of loans and credits in order to achieve profits.
- Marketing of multiple financial products, such as bonds, insurance or investment plans.
- Custody of valuable objects and documentation.
- Foreign currency purchase and sale procedures.
- It is an element of intermediation between the supply and demand of financial products.
It should be noted that in more recent times commercial banks have proliferated that operate virtually, that is, within an online framework. This has happened thanks to the development of electronic banking and the rapid spread of Internet networks in all corners of the world.Banks functions