Commercial Banks (Financial Economics) | tutor2u Economics
Study notes

Commercial Banks (Financial Economics)

  • Levels: AS, A Level, IB
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

Commercial banking relates to deposit-taking and lending. They provide services to corporate and individual customers.

What are commercial banks? - revision video

Some commercial banks have investment banking arms e.g. Bank of America Merrill Lynch

Commercial banks make their profits by taking small, short-term, relatively liquid deposits from retail savers and transforming these into larger, longer maturity loans e.g. in the form of business loans and mortgages

Other services of commercial banks include providing debit and credit cards, private banking, money custody and guarantees, cash management and settlement e.g. through cheque accounts, as well as trade finance.

Main functions of a commercial bank

  • Commercial banks provide retail banking services to household and business customers
  • They are licensed deposit-takers – providing a range of savings accounts
  • They are licensed to lend money (and thereby “create” money e.g. in the form of bank loans, overdrafts and mortgages
  • Commercial banks are profit-seeking
  • A commercial bank’s business model relies on receiving a higher interest rate on the loans (or other assets) than the rate it pays out on its deposits (or other liabilities)
  • This “spread” on their assets and liabilities is used to pay the operating expenses of a bank and also to make a profit

Objectives of a Commercial Bank

  • Commercial banks are profit-seeking businesses
  • Their main objective is to achieve a profit by earning more from the interest charged on loans than the interest paid to depositors
  • Commercial banks can also make profits from providing other services such as deposit security, currency trading, business advice, cheque and credit-card processing
  • Most commercial banks are privately owned but some in the UK are part or majority-owned by the UK government
  • The UK government owns 73% of Royal Bank of Scotland
  • It also owns a 10% minority stake in Lloyds Banking Group
Revision Webinar Commercial Banks and the UK Economy - revision video

View our full revision video playlist on Commercial Banks:

https://www.youtube.com/playli...

Subscribe to email updates from tutor2u Economics

Join 1000s of fellow Economics teachers and students all getting the tutor2u Economics team's latest resources and support delivered fresh in their inbox every morning.

You can also follow @tutor2uEconomics on Twitter, subscribe to our YouTube channel, or join our popular Facebook Groups.

Job board

Temporary Teacher of Mathematics

Frensham Heights School, Nr Farnham, Surrey

Related Collections

Teaching Vacancies

Recruitment

Advertise your vacancies with tutor2u

Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.

Find our more ›

Advertise your teaching jobs with tutor2u

A New Home for tutor2u Resources

We've just flicked the switch on moving all our digital resources to instant digital download - via our new subject stores.

For every subject you can now access each digital resource as soon as it is ordered. This will always be the latest edition of each resource too (and we'll update you automatically if there is an upgraded version to use).

Simply add the required resources to your cart, checkout using the usual options and your resources will be available to access immediately via your mytutor2u account.