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Commercial

A commercial bank (or business bank) is a type of retail bank that provides services, such as accepting deposits, giving business loans and basic investment products.

Origin of the word


The name bank derives from the Italian word banco "desk/bench", used during the Renaissance era by Florentine bankers, who used to make their transactions above a desk covered by a green tablecloth.[1] However, traces of banking activity can be found even in ancient times. In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would set up their stalls in the middle of enclosed courtyards called macella on a long bench called a bancu, from which the words banco and bank are derived. As a moneychanger, the merchant at the bancu did not so much invest money as

merely convert the foreign currency into the only legal tender in Rome that of the Imperial Mint.[2]

The role of commercial banks


Commercial banks engage in the following activities:

processing of payments by way of telegraphic transfer, EFTPOS, internet banking, or other means issuing bank drafts and bank cheques accepting money on term deposit lending money by overdraft, installment loan, or other means providing documentary and standby letter of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures safekeeping of documents & other items in safe deposit boxes sales, distribution or brokerage, with or without advice, of: insurance, unit trusts and similar financial products as a financial supermarket cash management and treasury merchant banking and private equity financing traditionally, large commercial banks also underwrite bonds, and make markets in currency, interest rates, and credit-related securities, but today large commercial banks usually have an investment bank arm that is involved in the mentioned activities[clarify].

Types of loans granted by commercial banks


Secured loan
A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. The debt is thus secured against the collateral in the event that the borrower defaults, the creditor takes possession of the asset used as collateral and may sell it to regain some or all of the amount originally lent to the borrower, for example, foreclosure of a home. From the creditor's perspective this is a category of debt in which a lender has been granted a portion of the bundle of rights to specified property. If the sale of the collateral does not raise enough money to pay off the debt, the creditor can often obtain a deficiency judgment against the borrower for the remaining amount. The opposite of secured debt/loan is unsecured debt, which is not connected to any specific piece of property and instead the creditor may only satisfy the debt against the borrower rather than the borrower's collateral and the borrower. A mortgage loan is a very common type of debt instrument, used to purchase real estate. Under this arrangement, the money is used to purchase the property. Commercial banks, however, are given security - a lien on the title to the house - until the mortgage is paid

off in full. If the borrower defaults on the loan, the bank would have the legal right to repossess the house and sell it, to recover sums owing to it. In the past, commercial banks have not been greatly interested in real estate loans and have placed only a relatively small percentage of assets in mortgages. As their name implies, such financial institutions secured their earning primarily from commercial and consumer loans and left the major task of home financing to others. However, due to changes in banking laws and policies, commercial banks are increasingly active in home financing. Changes in banking laws now allow commercial banks to make home mortgage loans on a more liberal basis than ever before. In acquiring mortgages on real estate, these institutions follow two main practices. First, some of the banks maintain active and wellorganized departments whose primary function is to compete actively for real estate loans. In areas lacking specialized real estate financial institutions, these banks become the source for residential and farm mortgage loans. Second, the banks acquire mortgages by simply purchasing them from mortgage bankers or dealers. In addition, dealer service companies, which were originally used to obtain car loans for permanent lenders such as commercial banks, wanted to broaden their activity beyond their local area. In recent years, however, such companies have concentrated on acquiring mobile home loans in volume for both commercial banks and savings and loan associations. Service companies obtain these loans from retail dealers, usually on a nonrecourse basis. Almost all bank/service company agreements contain a credit insurance policy that protects the lender if the consumer defaults.

Unsecured loan
Unsecured loans are monetary loans that are not secured against the borrower's assets (i.e., no collateral is involved). There are small businesss unsecured loans such as credit cards and credit lines to large corporate credit lines. These may be available from financial institutions under many different guises or marketing packages:

bank overdrafts

An overdraft occurs when money is withdrawn from a bank account and the available balance goes below zero. In this situation the account is said to be "overdrawn". If there is a prior agreement with the account provider for an overdraft, and the amount overdrawn is within the authorized overdraft limit, then interest is normally charged at the agreed rate. If the POSITIVE balance exceeds the agreed terms, then additional fees may be charged and higher interest rates may apply.

corporate bonds credit card debt credit facilities or lines of credit personal loans

What makes a bank limited liability company A corporate bond is a bond issued by a corporation. It is a bond that a corporation issues to raise money in order to expand its business.[1] The term is usually applied to longerterm debt instruments, generally with a maturity date falling at least a year after their issue date. (The term "commercial paper" is sometimes used for instruments with a shorter maturity.) Sometimes, the term "corporate bonds" is used to include all bonds except those issued by governments in their own currencies. Strictly speaking, however, it only applies to those issued by corporations. The bonds of local authorities and supranational organizations do not fit in either category.[clarification needed] Corporate bonds are often listed on major exchanges (bonds there are called "listed" bonds) and ECNs like Bonds.com and MarketAxess, and the coupon (i.e. interest payment) is usually taxable. Sometimes this coupon can be zero with a high redemption value. However, despite being listed on exchanges, the vast majority of trading volume in corporate bonds in most developed markets takes place in decentralized, dealer-based, over-the-counter markets. Some corporate bonds have an embedded call option that allows the issuer to redeem the debt before its maturity date. Other bonds, known as convertible bonds, allow investors to convert the bond into equity. Corporate Credit spreads may alternatively be earned in exchange for default risk through the mechanism of Credit Default Swaps which give an unfunded synthetic exposure to similar risks on the same 'Reference Entities'. However, owing to quite volatile CDS 'basis' the spreads on CDS and the credit spreads on corporate bonds can be significantly different.

Assets and Liabilities of Commercial Banks in the United States Glass-Steagall Act Mortgage constant

Functions of Commercial Banks


Commercial bank being the financial institution performs diverse types of functions. It satisfies the financial needs of the sectors such as agriculture, industry, trade, communication, etc. That means they play very significant role in a process of economic social needs. The functions performed by banks are changing according to change in time and recently they are becoming customer centric and widening their functions. Generally the functions of commercial banks are divided into two categories viz. primary functions and the secondary functions. The following chart simplifies the functions of banks. Primary Functions of Commercial Banks Commercial Banks performs various primary functions some of them are given below 1 Accepting Deposits : Commercial bank accepts various types of deposits from public especially from its clients. It includes saving account deposits, recurring account deposits, fixed deposits, etc. These deposits are payable after a certain time period 2 Making Advances : The commercial banks provide loans and advances of various forms. It includes an over draft facility, cash credit, bill discounting, etc. They also give demand

and demand and term loans to all types of clients against proper security. 3 Credit creation : It is most significant function of the commercial banks. While sanctioning a loan to a customer, a bank does not provide cash to the borrower Instead it opens a deposit account from where the borrower can withdraw. In other words while sanctioning a loan a bank automatically creates deposits. This is known as a credit creation from commercial bank.

Secondary Functions of Commercial Banks


Along with the primary functions each commercial bank has to perform several secondary functions too. It includes many agency functions or general utility functions. The secondary functions of commercial banks can be divided into agency functions and utility functions. a) Agency Functions : Various agency functions of commercial banks are
1 2 3 4 5 6 To To To To To To collect and clear cheque, dividends and interest warrant. make payment of rent, insurance premium, etc. deal in foreign exchange transactions. purchase and sell securities. act as trusty, attorney, correspondent and executor. accept tax proceeds and tax returns.

b) General Utility Functions : The general utility functions of the commercial banks include
1 To provide safety locker facility to customers. 2 To provide money transfer facility. 3 To issue traveller's cheque. 4 To act as referees. 5 To accept various bills for payment e.g. phone bills, gas bills, water bills, etc. 6 To provide merchant banking facility. 7 To provide various cards such as credit cards, debit cards, Smart card

1 To provide safety locker facility to customers. 2 To provide money transfer facility. 3 To issue traveller's cheque. 4 To act as referees. 5 To accept various bills for payment e.g. phone bills, gas bills, water bills, etc. 6 To provide merchant banking facility.

7 To provide various cards such as credit cards, debit cards, Smart cards, etc.

State Bank of India


From Wikipedia, the free encyclopedia Jump to: navigation, search State Bank of India

Type

Public NSE: SBIN BSE: 500112 Traded as LSE: SBID BSE SENSEX Constituent Industry Banking, Financial services Founded 1 July 1955 Headquarters Mumbai, Maharashtra, India Area served Worldwide

Key people

Products Revenue Profit Total assets Total equity Owner(s) Employees Website

Pratip Chaudhuri (Chairman) Credit cards, Consumer banking, corporate banking, finance and insurance, investment banking, mortgage loans, private banking, wealth management US$ 36.950 billion (2012)[1] US$ 3.202 billion (2012)[1] US$ 359.237 billion (2012)[1] US$ 20.854 billion (2012)[1] Government of India 292,215 (2012)[1] www.sbi.co.in

State Bank of India (SBI) (NSE: SBIN, BSE: 500112, LSE: SBID) is the largest banking and financial services company in India by revenue, assets and market capitalisation. It is a state-owned corporation with its headquarters in Mumbai, Maharashtra. As of March 2012, it had assets of US$360 billion and 14,119 branches, including 173 foreign offices in 37 countries across the globe. Including the branches that belong to its associate banks, SBI has 21,500 branches. The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. Bank of Madras merged into the other two presidency banksBank of Calcutta and Bank of Bombayto form the Imperial Bank of India, which in turn became the State Bank of India. The Government of India nationalised the Imperial Bank of India in 1955, with the Reserve Bank of India taking a 60% stake, and renamed it the State Bank of India. In 2008, the government took over the stake held by the Reserve Bank of India. SBI has been ranked 285th in the Fortune Global 500 rankings of the world's biggest corporations for the year 2012.[1] SBI provides a range of banking products through its vast network of branches in India and overseas, including products aimed at non-resident Indians (NRIs). The State Bank Group has the largest banking branch network in India. SBI has 14 local head offices situated at Chandigarh (Punjab & Haryana), Delhi, Lucknow (Uttar Pradesh), Patna (Bihar), Kolkata (West Bengal), Guwahati (North East Circle), Bhubaneswar (Orissa), Hyderabad (Andhra Pradesh), Chennai (Tamil Nadu), Trivandrum (Kerala), Bengaluru (Karnataka), Mumbai (Maharashtra), Bhopal (Madhya Pradesh) & Ahmedabad (Gujarat) and 57 Zonal Offices that are located at important cities throughout the country. SBI is a regional banking behemoth and is one of the largest financial institutions in the world. It has a market share among Indian commercial banks of about 20% in deposits and loans.[2] The State Bank of India is the 29th most reputed company in the world according to Forbes.[3] Also, SBI is the only bank featured in the coveted "top 10 brands

of India" list in an annual survey conducted by Brand Finance and The Economic Times in 2010.[4]

'The roots of the State Bank of India lie in the first decade of 19th century, when the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The Bank of Bengal was one of three Presidency banks, the other two being the Bank of Bombay (incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July 1843). All three Presidency banks were incorporated as joint stock companies and were the result of the royal charters. These three banks received the exclusive right to issue paper currency in 1861 with the Paper Currency Act, a right they retained until the formation of the Reserve Bank of India. The Presidency banks amalgamated on 27 January 1921, and the re-organized banking entity took as its name Imperial Bank of India. The Imperial Bank of India remained a joint stock company. Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of India, which is India's central bank, acquired a controlling interest in the Imperial Bank of India. On 30 April 1955, the Imperial Bank of India became the State Bank of India. The government of India recently acquired the Reserve Bank of India's stake in SBI so as to remove any conflict of interest because the RBI is the country's banking regulatory authority. In 1959, the government passed the State Bank of India (Subsidiary Banks) Act, which made eight state banks associates of SBI. A process of consolidation began on 13 September 2008, when the State Bank of Saurashtra merged with SBI. SBI has acquired local banks in rescues. The first was the Bank of Behar (est. 1911), which SBI acquired in 1969, together with its 28 branches. The next year SBI acquired National Bank of Lahore (est. 1942), which had 24 branches. Five years later, in 1975, SBI acquired Krishnaram Baldeo Bank, which had been established in 1916 in Gwalior State, under the patronage of Maharaja Madho Rao Scindia. The bank had been the Dukan Pichadi, a small moneylender, owned by the Maharaja. The new banks first manager was Jall N. Broacha, a Parsi. In 1985, SBI acquired the Bank of Cochin in Kerala, which had 120 branches. SBI was the acquirer as its affiliate, the State Bank of Travancore, already had an extensive network in Kerala. 'Bold text'

Contents

State Bank of India


From Wikipedia, the free encyclopedia Jump to: navigation, search State Bank of India

Type

Public NSE: SBIN BSE: 500112 Traded as LSE: SBID BSE SENSEX Constituent Industry Banking, Financial services Founded 1 July 1955 Headquarters Mumbai, Maharashtra, India Area served Worldwide Pratip Chaudhuri Key people (Chairman) Credit cards, Consumer banking, corporate banking, finance and Products insurance, investment banking, mortgage loans, private banking, wealth management Revenue US$ 36.950 billion (2012)[1] Profit US$ 3.202 billion (2012)[1] Total assets US$ 359.237 billion (2012)[1] Total equity US$ 20.854 billion (2012)[1] Owner(s) Government of India Employees 292,215 (2012)[1] Website www.sbi.co.in State Bank of India (SBI) (NSE: SBIN, BSE: 500112, LSE: SBID) is the largest banking and financial services company in India by revenue, assets and market capitalisation. It is a state-owned corporation with its headquarters in Mumbai, Maharashtra. As of March 2012, it had assets of US$360 billion and 14,119 branches, including 173 foreign offices in 37 countries across the globe. Including the branches that belong to its associate banks, SBI has 21,500 branches. The bank traces its ancestry to British India, through the Imperial Bank of India, to the founding in 1806 of the Bank of Calcutta, making it the oldest commercial bank in the Indian Subcontinent. Bank of Madras merged into the other two presidency banksBank of Calcutta and Bank of Bombayto form the Imperial Bank of India, which in turn became the State Bank of India. The Government of India nationalised the Imperial Bank of India in 1955, with the Reserve Bank of India taking a 60% stake, and renamed it the

State Bank of India. In 2008, the government took over the stake held by the Reserve Bank of India. SBI has been ranked 285th in the Fortune Global 500 rankings of the world's biggest corporations for the year 2012.[1] SBI provides a range of banking products through its vast network of branches in India and overseas, including products aimed at non-resident Indians (NRIs). The State Bank Group has the largest banking branch network in India. SBI has 14 local head offices situated at Chandigarh (Punjab & Haryana), Delhi, Lucknow (Uttar Pradesh), Patna (Bihar), Kolkata (West Bengal), Guwahati (North East Circle), Bhubaneswar (Orissa), Hyderabad (Andhra Pradesh), Chennai (Tamil Nadu), Trivandrum (Kerala), Bengaluru (Karnataka), Mumbai (Maharashtra), Bhopal (Madhya Pradesh) & Ahmedabad (Gujarat) and 57 Zonal Offices that are located at important cities throughout the country. SBI is a regional banking behemoth and is one of the largest financial institutions in the world. It has a market share among Indian commercial banks of about 20% in deposits and loans.[2] The State Bank of India is the 29th most reputed company in the world according to Forbes.[3] Also, SBI is the only bank featured in the coveted "top 10 brands of India" list in an annual survey conducted by Brand Finance and The Economic Times in 2010.[4]

'The roots of the State Bank of India lie in the first decade of 19th century, when the Bank of Calcutta, later renamed the Bank of Bengal, was established on 2 June 1806. The Bank of Bengal was one of three Presidency banks, the other two being the Bank of Bombay (incorporated on 15 April 1840) and the Bank of Madras (incorporated on 1 July 1843). All three Presidency banks were incorporated as joint stock companies and were the result of the royal charters. These three banks received the exclusive right to issue paper currency in 1861 with the Paper Currency Act, a right they retained until the formation of the Reserve Bank of India. The Presidency banks amalgamated on 27 January 1921, and the re-organized banking entity took as its name Imperial Bank of India. The Imperial Bank of India remained a joint stock company. Pursuant to the provisions of the State Bank of India Act of 1955, the Reserve Bank of India, which is India's central bank, acquired a controlling interest in the Imperial Bank of India. On 30 April 1955, the Imperial Bank of India became the State Bank of India. The government of India recently acquired the Reserve Bank of India's stake in SBI so as to remove any conflict of interest because the RBI is the country's banking regulatory authority. In 1959, the government passed the State Bank of India (Subsidiary Banks) Act, which made eight state banks associates of SBI. A process of consolidation began on 13 September 2008, when the State Bank of Saurashtra merged with SBI.

SBI has acquired local banks in rescues. The first was the Bank of Behar (est. 1911), which SBI acquired in 1969, together with its 28 branches. The next year SBI acquired National Bank of Lahore (est. 1942), which had 24 branches. Five years later, in 1975, SBI acquired Krishnaram Baldeo Bank, which had been established in 1916 in Gwalior State, under the patronage of Maharaja Madho Rao Scindia. The bank had been the Dukan Pichadi, a small moneylender, owned by the Maharaja. The new banks first manager was Jall N. Broacha, a Parsi. In 1985, SBI acquired the Bank of Cochin in Kerala, which had 120 branches. SBI was the acquirer as its affiliate, the State Bank of Travancore, already had an extensive network in Kerala. 'Bold text'

Contents

commercial bank
Definition
An institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit. These institutions are run to make a profit and owned by a group of individuals, yet some may be members of the Federal Reserve System. While commercial banks offer services to individuals, they are primarily concerned with receiving deposits and lending to businesses. Read more: http://www.investorwords.com/955/commercial_bank.html#ixzz2HGYT1n1w

commercial bank
Definition
An institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit. These institutions are run to make a profit and owned by a group of

individuals, yet some may be members of the Federal Reserve System. While commercial banks offer services to individuals, they are primarily concerned with receiving deposits and lending to businesses. Read more: http://www.investorwords.com/955/commercial_bank.html#ixzz2HGYT1n1w

What Are the Characteristics of a Commercial Bank?


By Devra Gartenstein, eHow Contributor

Print this article

Commercial banks manage financial transactions for individuals and businesses. Commercial banks are financial entities that accept deposits and provide loans for individuals and businesses. The term "commercial bank" came into common usage as a way to distinguish this type of financial institution from an investment bank, which

primarily manages securities for governments and corporations by underwriting their financial activities.

Other People Are Reading

What Are the Financial Characteristics of a Commercial Bank? What Are the Services Commercial Banks Provide?

Run for Profit


o

Commercial banks are operated with the objective of making a profit. Their fee structure and interest rate is designed with the intention of making money for owners and shareholders. This characteristic of commercial banks contrasts with the primary function of credit unions, which are nonprofit community institutions that help individuals and businesses manage their money. Commercial banks make money by charging clients who use their services and borrow their funds. Credit unions charge for bank accounts and loans as well, but they charge less because their fee structure is designed to cover their costs, rather than also making a profit.

Privately Owned
o

Commercial banks are owned by private individuals or collections of private individuals acting as shareholders. They are regulated by government institutions and must follow all applicable laws, but they are not owned by the government. Except under unusual circumstances such as the 2008 financial bailout, the private individuals who run commercial banks are responsible for major policy decisions. Unlike credit unions, where depositors automatically become members and stakeholders by joining and making deposits, shareholders in commercial banks must invest money specifically in ownership by purchasing stock.

Primarily Interested in Working with Businesses


o

Commercial banks sometimes offer products and services to individuals, but their primary interest is in working with businesses; in fact, commercial banks are also sometimes known as "business banks." Banking services offered to individuals are sometimes referred to as "retail banking," because they are often small scale transactions. Business

accounts tend to involve larger sums of money, and the fees and profits that commercial banks reap from them tend to be greater. Read more: What Are the Characteristics of a Commercial Bank? | eHow.com http://www.ehow.com/list_6125387_characteristics-commercialbank_.html#ixzz2HGaRtnl2

What Are the Characteristics of a Commercial Bank?


By Devra Gartenstein, eHow Contributor

Print this article

Commercial banks manage financial transactions for individuals and businesses. Commercial banks are financial entities that accept deposits and provide loans for individuals and businesses. The term "commercial bank" came into common usage as a way to distinguish this type of financial institution from an investment bank, which primarily manages securities for governments and corporations by underwriting their financial activities.

Other People Are Reading

What Are the Financial Characteristics of a Commercial Bank? What Are the Services Commercial Banks Provide?

Run for Profit


o

Commercial banks are operated with the objective of making a profit. Their fee structure and interest rate is designed with the intention of making money for owners and shareholders. This characteristic of commercial banks contrasts with the primary function of credit unions, which are nonprofit community institutions that help individuals and businesses manage their money. Commercial banks make money by charging clients who use their services and borrow their funds. Credit unions charge for bank accounts and loans as well, but they charge less because their fee structure is designed to cover their costs, rather than also making a profit.

Privately Owned
o

Commercial banks are owned by private individuals or collections of private individuals acting as shareholders. They are regulated by government institutions and must follow all applicable laws, but they are not owned by the government. Except under unusual circumstances such as the 2008 financial bailout, the private individuals who run commercial banks are responsible for major policy decisions. Unlike credit unions, where depositors automatically become members and stakeholders by joining and making deposits, shareholders in commercial banks must invest money specifically in ownership by purchasing stock.

Primarily Interested in Working with Businesses


o

Commercial banks sometimes offer products and services to individuals, but their primary interest is in working with businesses; in fact, commercial banks are also sometimes known as "business banks." Banking services offered to individuals are sometimes referred to as "retail banking," because they are often small scale transactions. Business accounts tend to involve larger sums of money, and the fees and profits that commercial banks reap from them tend to be greater.

What Is the Objective of a Commercial Bank?


By Carl Wolf, eHow Contributor

Print this article

Co mmercial banks participate in the community. The main objective of a commercial bank is to generate profitability for its ownership by providing quality based products and services to the residents of the communities and regions that they represent. Aside from offering traditional banking products, commercial banks must be highly competitive and provide specialized products. For example, some commercial banks participate in the innovative CDARS (Certificate of Deposit Account Registry Service) program that allows customers to deposit up to $5 million in FDIC insured time deposits.

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Dangers of Commercial Banking The Objectives of Commercial Banking

Function
o

Commercial banks attempt to function as the financial institution of choice for all levels of the community. Therefore, they concentrate on those products and services that are most in demand. For example, if a commercial bank is located in a farming region, the products offered range from small business and consumer loans to the financing of farm equipment and distribution centers. In addition, commercial banks must offer full service banking that includes deposit taking, mortgage lending, check clearing and all other fee for service activities.

Significance

Commercial banks are different from other types of banks due to their close knit community relationship and the specialized local products that they offer to their customer base. They are not able to effectively compete with large money center banks or multinational banks that engage in money dealing activities such as buying and selling overnight federal funds, hedging of foreign exchange contracts or trading in securities.
o

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Services

An important objective for a commercial bank is to increase the level of new customers and to retain those customers that already exist. In this regard, the quality and type of banking services offered are crucial, especially since services are provided in exchange for fee income, which is a great contributing factor to the profitability of a bank. Commercial banks must be able to either provide in-house or outsourced services for all types of banking products such as check collection, electronic payments, foreign exchange conversions, letters of credit, investment advisory services and trust accounts. Since some of these services may have to be outsourced to larger banks, a seamless type of environment must exist between the commercial bank and the contractor.

Community Involvement
o

Commercial banks are tied to the communities they serve and must be heavily involved in local associations and organizations. Furthermore, banking legislation requires that each bank must provide loans through the "Community Reinvestment Act" (CRA) program. These CRA programs usually represent loans made to low income housing projects, hospitals and schools for the needy.

Regulation
o

All commercial banks must have the objective of complying with banking regulations, rules and laws. Many different types of regulations exist in order to protect consumers, depositors and loan customers. For example, Regulation CC stipulates the time frame for the availability of funds deposited and the collection of checks while Regulation Z includes laws regarding truth in lending. The regulatory authorities conduct annual examinations of banks.

Sponsored Links Read more: What Is the Objective of a Commercial Bank? | eHow.com http://www.ehow.com/about_6620672_objective-commercialbank_.html#ixzz2HGakuqac

What Is the Objective of a Commercial Bank?


By Carl Wolf, eHow Contributor

Print this article

Commercial banks participate in the community. The main objective of a commercial bank is to generate profitability for its ownership by providing quality based products and services to the residents of the communities and regions that they represent. Aside from offering traditional banking products, commercial banks must be highly competitive and provide specialized products. For example, some commercial banks participate in the innovative CDARS (Certificate of Deposit Account Registry Service) program that allows customers to deposit up to $5 million in FDIC insured time deposits.

Other People Are Reading

Dangers of Commercial Banking The Objectives of Commercial Banking

Function
o

Commercial banks attempt to function as the financial institution of choice for all levels of the community. Therefore, they concentrate on those products and services that are most in demand. For example, if a commercial bank is located in a farming region, the products offered range from small business and consumer loans to the financing of farm equipment and distribution centers. In addition, commercial banks must

offer full service banking that includes deposit taking, mortgage lending, check clearing and all other fee for service activities.

Significance

Commercial banks are different from other types of banks due to their close knit community relationship and the specialized local products that they offer to their customer base. They are not able to effectively compete with large money center banks or multinational banks that engage in money dealing activities such as buying and selling overnight federal funds, hedging of foreign exchange contracts or trading in securities.
o

Sponsored Links Open Offshore Account The only way to have an Offshore Account with Onshore features www.orwellunion.com

Services

An important objective for a commercial bank is to increase the level of new customers and to retain those customers that already exist. In this regard, the quality and type of banking services offered are crucial, especially since services are provided in exchange for fee income, which is a great contributing factor to the profitability of a bank. Commercial banks must be able to either provide in-house or outsourced services for all types of banking products such as check collection, electronic payments, foreign exchange conversions, letters of credit, investment advisory services and trust accounts. Since some of these services may have to be outsourced to larger banks, a seamless type of environment must exist between the commercial bank and the contractor.

Community Involvement

Commercial banks are tied to the communities they serve and must be heavily involved in local associations and organizations. Furthermore, banking legislation requires that each bank must provide loans through the "Community Reinvestment Act" (CRA) program. These CRA programs usually represent loans made to low income housing projects, hospitals and schools for the needy.

Regulation
o

All commercial banks must have the objective of complying with banking regulations, rules and laws. Many different types of regulations exist in order to protect consumers, depositors and loan customers. For example, Regulation CC stipulates the time frame for the availability of funds deposited and the collection of checks while Regulation Z includes laws regarding truth in lending. The regulatory authorities conduct annual examinations of banks.

Role of Commercial Banks in Economic Development


By Gilberto Fuentes, eHow Contributor

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Commercial banks are one source of financing for small businesses. The role of commercial banks in economic development rests chiefly on their role as financial intermediaries. In this capacity, commercial banks help drive the flow of investment capital throughout the marketplace. The chief mechanism of this capital allocation in the economy is through the lending process which helps commercial banks gauge financial risk.

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Role of Commercial Bank in Industrial Sector Role of Commercial Banks in Economy

Risk
o

One of the most significant roles of commercial banks in economic development is as arbiters of risk. This occurs primarily when banks make loans to businesses or individuals. For instance, when individuals apply to borrow money from a bank, the bank examines the borrower's finances, including income, credit score and debt level, among other factors. The outcome of this analysis helps the bank gauge the likelihood of borrower default. By weeding out risky borrowers, commercial banks lessen the risk of financial losses. As a result, loans that mature without any problems generate a larger pool of funds for the bank to lend, further supporting economic development.

Individuals
o

When commercial banks assess risk, they help ensure that loans go to creditworthy borrowers. In turn, borrowers typically use loan proceeds to finance major purchases, such as homes, education and other consumer spending. The effect of commercial bank lending generates economic activity from individuals who now have the necessary funds to finance their own endeavors. Sponsored Links Global Equity Partners Corporate restructuring, financial and corporate advisory gepartnersplc.com

Small Business
o

Commercial banks also finance business lending in a variety of ways. A business owner may solicit a loan to finance the start-up costs of a small business. Once funded, the small business may begin operations and embark on a growth plan. The aggregate effect of small business activity generates a significant portion of employment around the country. According to the U.S. Census Bureau, businesses employing between one and 19 people accounted for 4.4 million jobs in 2004. In contrast, businesses with more than 20 employees only accounted for 1.2 million in the same year.

Government Spending
o

Commercial banks also support the role of the federal government as an agent of economic development. Generally, commercial banks help fund government spending by purchasing bonds issued by the Department of the Treasury. Both long and short term Treasury bonds help finance government operations, programs and support deficit spending.

Wealth
o

Commercial banks also offer types of accounts to hold or generate individual wealth. In turn, the deposits commercial banks attract with account services are used for lending and investment. For example, commercial banks commonly attract deposits by offering a traditional menu of savings and checking accounts for businesses and individuals. Similarly, banks offer other types of timed deposit accounts, such as money market accounts and certificates of deposit. Some investors use

these interest bearing, low risk accounts to hold money for investment purposes, waiting for attractive investment opportunities to materiased.

1. 2. 3. 4. 5.

eHow Personal Finance Banking Commercial Banks How a Commercial Bank Works

How a Commercial Bank Works


By Linda Ray, eHow Contributor

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How a Commercial Bank Works

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Commercial Banking Laws Commercial Bank Advantages

Basics
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Commercial banks primarily serve small and medium-sized businesses through loans, though many commercial banks have expanded to include loans and other financial services to consumers as well. In addition to loans, commercial banks provide savings and checking accounts, money market accounts and other financial vehicles to customers. Commercial banks rarely have walk-in facilities, instead relying on account representatives, or salespeople, to visit clients in their places of business. Commercial banks typically are more liquid than other financial institutions and pose less risk to investors because the commercial bank

does not trade in risky investments. Most commercial banks are privately funded, for-profit companies. Deposits at commercial banks receive the same insurance coverage from the Federal Deposit Insurance Corporation (FDIC) as public-sector banks.

Additional Services
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Commercial banks often make their services available to customers and their families for personal banking needs. First Commercial Bank has set up a Certificate of Deposit (CD) program for high-wealth business owners to save up to $50 million in insured deposits with the bank. Commercial banks use financial planners for their clients to arrange business succession plans, estate planning and other family financial matters. Sponsored Links Limited Bids, More Chance Buy Your Favourite Product Cheaper. Get a Sign Up Bonus of Rs.10 Today Vidabest.in/Sign-up

Merchant Services
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In addition to business loans, many commercial banks provide a variety of merchant services for their clients. For example, they will service a company's credit and debit card transactions, often for a lower fee than outside companies, when the client uses the bank for other services, such as deposits and loans. Commercial banks can provide leases for point-ofservice transaction equipment along with leases for other business-related equipment.

Niche Markets
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Commercial banks such as Rockbridge Commercial Bank target niche markets such as medical, legal and accounting practices. They understand the financial needs and pressures of newly graduated legal and medical professionals and seek to begin a relationship with clients early in their careers by providing mortgage and continuing education loans. Through a longstanding relationship, the banks hope doctors and lawyers will turn to them for funding of new offices and medical facilities, payroll financing and expansion loans.

SBA Loans

Many commercial banks, such as Commerce Bank, are designated as official Small Business Administrator (SBA) loan originators. They have the authority and the network of contacts and paperwork to receive SBA loan applications, approve and fund the agreements that are low-interest loans guaranteed by the federal government. SBA loans can be used to fund new buildings, equipment, payroll and other startup costs for a small business. Loans can be expedited through a commercial bank that has access to quick approvals and expedient processing avenues.