tutor2u | What are Commercial Banks? (Financial Economics)

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What are Commercial Banks? (Financial Economics)

A Level, IB
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 21 Mar 2021

This short revision video looks at the core functions of commercial banks in the UK.

  • Commercial banks provide retail banking services to household and business customers
  • They are licensed deposit-takers – providing a range of savings accounts for households and businesses
  • They are licensed to lend money (and thereby “create” money e.g. in the form of loans, overdrafts and mortgages
  • Commercial banks can also make profits from providing other services such as deposit security, currency trading, business advice, cheque and credit-card processing
  • 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
What are Commercial Banks?


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