Economics
Student Videos
What are Commercial Banks? (Financial Economics)
- Level:
- A Level, IB
- Board:
- 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
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