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Commercial Banks

Date Added: December 06, 2010 03:02:45 PM
A Commercial bank is defined as any bank that offers commercial products and/or services. The commercial banking industry is commonly referred to as the business banking sector. Commercial banks typically provide checking, savings, and money market accounts, and commercial also accept time deposits. In the United States, commercial banks are required to restrict their activity to banking operations, whereas investment banks are required to restrict their activity to capital market activities. Commercial bank differs from retail banking, which provides direct products and services to individual customers. However, some retail banks that specialize in providing products and services to corporations and businesses are also called commercial banks.

Duties of a Commercial Bank

Commercial banks have a plethora of duties to fulfill in order to provide their products and services to their customer base. The typical activities of a commercial bank include:

• Payment processing
• Issuing bank checks and drafts
• Taking term deposits
• Lending funds
• Providing and securing banking documentation
• Selling, distributing and brokering insurance
• Cash management/Treasury
• Merchant banking
• Private equity financing
• Making markets

Commercial Banking Loans

There are the main types of loans that are typically granted by commercial banks – secured loans, unsecured loans and mortgage loans. A secured loan requires the borrower to pledge collateral in the form of an asset such as a vehicle or property. The amount of collateral needed will usually depend on the applicant's credit score, the amount of the loan, and various other factors. An unsecured loan is any loan that is not secured by collateral, which includes bank overdrafts, credit card debt and lines of credit, corporate bonds, and personal loans. A mortgage loan is one of the most common types of debt instrument used in real estate financing. Due to the rising rates of foreclosure and the struggling economy, commercial banks are becoming increasingly active in the home financing industry, granting more mortgage loans each year. Commercial banks are given a lien on the title of any property holding one of their mortgages, so if the borrower defaults on the mortgage the bank has the right to seize and sell the property and auction it for profit.

Investing with Commercial Banks

Although commercial banks differ from investment banks, they do offer retail investment products to consumers. Perhaps the most popular investment instrument offered by commercial banks is the term deposit. Commercial banks offer the best rates on fixed term deposits, and are capable of providing the best financial advisory to help the customer develop a sound investment strategy that with maximum returns. In the United States and other countries, all term deposits in commercial banks are federally insured and regulated. Most US banks offer debt consolidation loans, which can help consumer manage their debts..