US Commercial Banks

From Economypedia.com

[edit] Primary Functions of US Commercial Banks

Without doubt, US commercial banks carry a tremendous amount of responsibility for business of all industries in this country. Interestingly, a commercial bank is not just a bank but also a financial intermediary. In some sectors, US commercial banks are more commonly referred to as “business banks”. Just as a personal bank, a commercial bank offers checking and savings accounts, money market accounts, and time deposits but the difference is that the focus is on the commercial arena.

Over the years, US commercial banks have made modifications to stay in line with government regulations. For instance, Congress passed the Glass-Steagall Act, which required all banks engage solely in banking activities. This meant that investment banks were required to deal only with capital market activities and nothing more. Therefore, according to United States law, US commercial banks were classified as a bank or division of a bank that only deals with loans and deposits for corporations and large businesses.

In some parts of the country, the process of separating investment and commercial banks was never done and not required. Additionally, with US commercial banks, some are considered different from retail banking, which also provides a laundry list of financial services for consumers rather than businesses. In fact, it is now common to find banks throughout the United States that serve the public as both a retail and commercial banking operation.

Now, when looking at functions of US commercial banks, there are many but they are also distinct to this particular type of financial institution. For instance, this type of bank is responsible for processing payments via EFTPOS, telegraphic transfer, and internet banking, as well as other options. The bank issues bank checks and drafts, accepts money on term deposits, loans money using a variety of means to include installment loan and overdraft, offers treasury and cash management services, and finances private equity, as well as merchant banking.

Some of the other functions provided by US commercial banks are to provide a standby letter of credit, guarantees, securities underwriting commitments, and performance bonds, along with various other off-balance sheet exposures. Then, these banks provide safe deposit boxes for a nominal fee to customers whereby important documents and valuables could be stored, and a variety of financial products such as insurance, unit trusts, etc. While not all US commercial banks do, some will also underwrite bonds and make markets in interest rates, currency, and any securities related to credit. In fact, some of the larger US commercial banks today actually have a special investment division whereby these and other investment services are offered.

Finally, loans to businesses are a key service provided by US commercial banks. For instance, secured loans are provided whereby the borrower would put up some type of asset for collateral and a mortgage loan is used for the purchase of real estate and for this type of bank, a lien on the house would be held until the mortgage has been paid off in full. Then, some US commercial banks also offer unsecured loans, which have no security in the form of assets.

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