Commercial Bank
A commercial bank is a financial institution that provides deposit accounts, loans, and basic financial services to individuals and businesses.
Meaning in Practice
In practice, commercial banks accept deposits such as savings and checking accounts and extend loans including mortgages, consumer credit, and business loans. They generate income primarily through the interest rate spread between deposits and loans. Commercial banks are subject to regulatory capital and liquidity requirements.
Why It Matters
Commercial banks are key intermediaries in the credit system and play a central role in money creation. They support households and businesses by providing financing and payment services. Their stability directly affects economic growth and financial confidence.
Market Impact
The health of commercial banks influences lending conditions, credit growth, and interest rate transmission. Strong bank balance sheets support economic expansion, while banking stress can tighten credit and increase market volatility. Bank earnings also affect equity and bond markets.
Example
A commercial bank collects deposits from customers and uses those funds to issue mortgages and small business loans, earning interest income while providing everyday banking services.