What Are Commercial Banks

After the Great Depression, the US Congress required all the banks in the nation to engage just in banking activities and this leads us to what are commercial banks. Commercial banks are type of banks as well as financial intermediary.

However, commercial banks can have two possible meanings and they are as follows:

• Commercial bank is a term used to describe normal banks so that people can differentiate it from an investment bank. Since both the bank types are no longer two separate companies, the term commercial bank is used to refer to banks that focus mainly on companies. During the Great Depression and after the famous stock market crash, the US Congress passed the Glass Steagal Act 1933-35 which required commercial banks to concentrate just on banking activities like accepting deposits, making loans and other fee-based financial services. Investment banks on the other hand were made to concentrate just on capital markets. However, this separation is no longer compulsory. Therefore, commercial banks nowadays collect deposits from businesses and consumers, they make loans to business and consumers, and they also buy corporate bonds and government bonds. If you want a mortgage, you can also approach a commercial bank. The main assets of commercial banks are loans and bonds while their main liabilities are deposits.
• Commercial bank can also refer to a division of a bank that deals primarily with deposits and loans for large businesses and corporations. This means that the bank division does not cater to ordinary people or individuals.

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