Commercial Banks Examples: What Are They and Their Role
What is a commercial bank and what would be some commercial banks examples? A commercial bank is a type of financial institution that specializes in offering services such as deposits, loans and some basic investment products for individual customers.
When talking about financial institutions, it is important to differentiate commercial banks from other types of banks, since these are dedicated to specific tasks to satisfy the needs of common users and certain companies.
Examples of commercial banks:
- J.P. Morgan Chase.
- Bank Of America.
- Wells Fargo.
- U.S. Bancorp.
- SunTrust Bank.
- Citizens Financial Group.
- Fifth Third Bank.
The commercial banks we've shown you in the list above are the biggest banks in United States.
What are the functions of commercial banks?
A commercial bank takes deposits from the public, directing those resources to the granting of loans, with the objective of making a profit.
Their common tasks include:
- Payment processing through wire transfers.
- Online or face-to-face banking service.
- Issuance of checks and bank drafts.
- Long-term deposit service.
- Personal loan service.
- The service of guarantees, performance bonds, etc.
- Safe deposit box service.
- The service of currency exchange.
- The sale of services such as insurance and investment funds, either with advice or independently.
What is the role of commercial banks in economic development?
Promotes capital formation by accepting deposits from individuals and companies, and then making these funds available to other agents to grant credits that allow investment in new companies and the adoption of new production methods, thus supporting the productive capacity of economies.
Types of commercial banks
There are three types of commercial banks:
1. Public banks
Public banks are those banking entities in which the State or different public subjects are the owners. They are companies under state control.
2. Private banks
A financial institution whose capital is contributed by private shareholders, as opposed to public banks, which are state-owned.
3. Foreign banks
Banks whose principal place of business is abroad or whose majority of the capital belongs to individuals or legal entities not resident in the Republic.
Products and services offered by commercial banks
1. Bank loan
This is the financial operation where the bank makes available to the client an amount of money to be used in the medium and long term for investments and in the short term for working capital.
The company receives the total amount of the loaned capital at the moment the operation is formalized and can use this amount immediately.
2. Syndicated loan
Resources contributed by several financial institutions (trustees) in favor of an entity and controlled by a financial institution (agent).
3. Line of credit
It's the transaction through a contract for the client to have financial resources available up to a certain amount which may be partially or totally used to cover cash needs during a fixed period of time, generally one year.
4. Revolving line of credit
This is a line of credit in which total or partial repayments release the authorized credit limit. Companies obtain this type of short-term financing for current needs and it is highly operational. It can be used partially or totally.
5. Bank discount or Trade discount
In this operation, the bank advances the payment of a debt not yet due. It is a short-term financing for current needs.
It is a means that avoids waiting until the maturity date of the bills of exchange to obtain the amount of sales made or payment for services rendered, making it essential for financing the working capital of companies.
Leasing is a contract for the financial leasing of an asset, with an option to purchase it at the expiration of the agreed term. It obligates the lessee to make fixed payments for the use of physical assets such as equipment and land.
There is some flexibility because the company benefiting from the leasing contract can adapt the duration of the contract to the useful life of the equipment, using it during the period in which its productivity is highest.
Factoring is a transaction whereby a company makes a commercial assignment of its receivables portfolio to a third party company or bank.
In this way the company is advancing its collections and consequently receiving financing. The bureaucratic and collection management work is eliminated, thus relieving the company's administration. The expenses associated with the operation are tax deductible.
Confirming is a financial operation whereby the confirming entity takes charge of the payment of the invoices that the client company has pending with its suppliers, provided that the maturity of the payment is deferred in time.
9. Debit card
Debit cards are those that, when used, debit money directly and instantly from your personal account, either savings or checking, to which they are associated.
10. Credit card
A credit card is a plastic card issued by a financial company and allows its owner the option to borrow money from the issuer.
Commercial banks vs investment banks
On one hand, the commercial bank, while offering different types of personalized advice, has more to do with day-to-day operations. Generally, most people are interested in opening an account with a commercial bank, because through it they can access services such as loans, mortgages, savings and checking accounts.
On the other hand, investment banks mainly offer a financial intermediation service, helping large corporations to define their takeover bids, conduct negotiations, obtain financing and carry out corporate mergers.
Likewise, investment banks act as an institution through which individuals interested in making personal or business investments obtain personalized advice from an agent.
The commercial banks are focused on providing financial services to individuals to supply their financial needs.
Charging fees or interests by the services provided is how they make money and they play an important role in the development of a country's economy.
Commercial banks FAQs
What is commercial banking?
Commercial banking is a group of entities whose economic activity is financial intermediation. In other words, they collect savings from the public and use these resources to grant loans. In other words, a commercial bank receives capital from individuals or companies seeking to save. In this way, funds are raised for subsequent lending.