Commercial bank

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A commercial bank is a type of financial intermediary and a type of bank. Commercial banking is also known as business banking. It is a bank that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits.
[1]

After the implementation of the Glass-Steagall Act, the U.S. Congress

required that banks engage only in banking activities, whereas investment banks were limited to capital market activities. As the two no longer have to be under separate ownership under U.S. law, some use the term "commercial bank" to refer to a bank or a division of a bank primarily dealing with deposits and loans from corporations or large businesses. In some other jurisdictions, the strict separation of investment and commercial banking never applied. Commercial banking may also be seen as distinct from retail banking, which involves the provision of financial services direct to consumers. Many banks offer both commercial and retail banking services.
Contents
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1 Origin of the word 2 The role of commercial banks 3 Types of loans granted by commercial banks

3.1 Secured loan

3.1.1 Mortgage loan

3.2 Unsecured loan

4 See also 5 References 6 Further reading 7 External links

[edit]Origin

of the word

The name bank derives from the Italian word banco "desk/bench", used during the Renaissance by Florentine bankers, who used to make their transactions above a desk covered by a green tablecloth.
[2]

However, traces of banking activity can be found even in ancient times.

In fact, the word traces its origins back to the Ancient Roman Empire, where moneylenders would set up their stalls in the middle of enclosed courtyards calledmacella on a long bench called a bancu, from which the words banco and bank are derived. As a moneychanger, the merchant at the bancu did not so much invest money as merely convert the foreign currency into the only legal tender in Rome- that of the Imperial Mint. [edit]The
[3]

role of commercial banks

Commercial banks engage in the following activities:

processing of payments by way of telegraphic transfer, EFTPOS, internet banking, or other means issuing bank drafts and bank cheques accepting money on term deposit lending money by overdraft, installment loan, or other means providing documentary and standby letter of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures

safekeeping of documents and other items in safe deposit boxes sale, distribution or brokerage, with or without advice, of insurance, unit trusts and similar financial products as a financial supermarket

cash management and treasury services merchant banking and private equity financing

traditionally, large commercial banks also underwrite bonds, and make markets in currency, interest rates, and credit-related securities, but today large commercial banks usually have an investment bank arm that is involved in the mentioned activities.

1. Receiving Deposits: This is the main function of commercial banks to collect savings of individuals and firms. They offer different types of deposits for the facility of the customers. i. Current Account or Demand Deposits: Any amount can be withdrawn from this account any time without any notice. No interest is allowed on this type of account. ii. Saving Account: This type of deposit account which is usually held by the middle class group. The saving account carries lower rate of interest. iii. Fixed Deposit: Amount cannot be withdrawn before the fixed future date in this type of deposit. High interest is allowed in fixed deposit which is different according to period. 2. Advancing Loans: This is the important function of the commercial bank. Credit is given to the people in different ways. (a.): Making Loans: There are three types of loans given to borrowers. i. Short Term Loans: These loans are advanced for the period of six months to one year. High Interest rate Is charged on this type of accounts. ii. Medium Term Loans: Loans from one to five years are called medium term loans. iii: Long Term Loans: Loans which are advanced for the period, more than ten years are long term loans. (b.): Bank Overdraft: Banks allows their trustful customers to draw more than the deposit they have in the Bank. Bank charges interest on overdraft. (c.): Cash Credit: Bank also gives credit against immovable property and interest is charged by the bank. (d.): Discounting of Bills: This is income source of bank to discount bills of exchange. They charge nominal Interest and discount only reputed and clear bills of exchange Commercial banks play an important role in economic development of developing country. Economic development involves investment in various sectors of economy. The banks collect savings from the people and mobilize saving for investment in industrial project. The investors borrow from banks to finance the projects. Promote the growth rate through the reorientation of loan policy. Special funds are provided to the investors for the completion of projects. The banks provide a guarantee for industrial loan from international agencies. The foreign capital flows to developing countries for investment in projects. Besides normal banking the banks perform agency services for the client. The banks buy and sell securities, make rent payments, receive subscription funds and collect utility bills for the Government departments. Thus these banks save time and energy of busy peoples. Banks arrange foreign

exchange for the business transaction with other countries. The facility of foreign currency account has resulted in an increase of foreign exchange reserves. By opening a letter of credit the banks promote foreign trade.

The banks are not simply collecting funds but also serve as a guide to the customer investment of their funds. The policy of banks is an instrument in wide dispersal of credit in country Commercial banks are extremely important in industry, by providing the loanable funds that these industries need to expand and develop. Banks are also involved with industry in other ways, like by securing and providing access to financial transactions and financial accounts like checking and electronic transfer services; by securing agreements between partiesconcerning leases, ownership and contracts; or by safekeeping of documents and other items in safe-deposit boxes and in safes. Most importantly to commercial banks, though, is loanable funds. The primary function of banks in economics is to aggregate small surpluses in savings and to loan out these aggregated chunks of capital to firms trying to invest.

History
1. Banking activity has occurred steadily with more complexity since Florentine merchants in the 12th century, but it wasn't until the 1930s that commercial banks were technically created. During the period before the Great Depression, all banks were essentially similar. After the disaster, Congress required that banks be separated into investment banks--those that deal with capital markets and engage in capital market activities--and commercial banks, which were to deal with checking accounts and savings accounts as a usual bank. The two are no longer separate under U.S. law, so the term "commercial bank" has come to suggest those banks that focus on corporations or large business (compared to retail banking services). Today commercial banks are a hugely important part of how firms acquire and use capital to finance everyday activities.

Loanable Funds
2. Commercial banks are primarily important to industry and the industrial sector because of the loans that they give out. Specifically, commercial banks give out loans to those that are interested in expanding investing activities. This might include secured loans--where the borrower has pledged some certain asset (such as a building) as collateral--or unsecured loans, which include loans like corporate bonds, credit card loans (debt) and personal loans. Business is done with these loans on a regular basis.

The Price of Loanable Funds

3. The cost of loanable funds given from a commercial bank to a manufacturer in an industry is the interest rate on the loan. Interest rates are determined by the supply and demand for loanable funds: how many people are interested in obtaining investment capital and how much they're willing to pay, along with how many loaners are interested in loaning investment capital and how much they're willing to loan at certain interest rates. These factors come together to achieve an agreed-upon price for a certain type of loans. When loans are priced either too high or too low, sellers of loans will find either excess demand leading to a shortage of funds or weak demand leading to a surplus. Either way, it is in the best interest of the bank for the loan to be changed to an equilibrating value.

Size
4. The global banking industry is enormous. U.S. banks have about a 14 percent share of world banking power, and worldwide assets of the largest 1,000 banks at the end of 2007 reached close to $75 trillion. Not all of these could be considered "commercial banks" in the colloquial sense: the problem is that deciding between what makes a corporate bank and what makes a retail bank will be an arbitrary decision. The United States has the largest number of banking institutions and number of branches, making it officially the nation with the most banks in the world.

Theories/Speculation
5. The banking crisis was triggered by too much risk in the financial system. There are many types of risk associated with financial transactions for banks, like liquidity risk (the risk of a bank run because depositors

try to withdraw too much money too quickly), credit risk (the risk that loans will go bad and no one will pay them back) and interest rate risk (the risk that the bank will have to pay more out for deposits than they are receiving by getting interest payments). When banking problems occur, it disrupts the loanable funds market and makes firms have to struggle to get capital for funding. The credit crisis was largely a crisis of bad loans; as banks overextended themselves and debtors failed to pay back the loans, banks couldn't cover their balance sheets and needed huge influxes of money to get back in the black.

Read more: Role of Commercial Bank in Industrial Sector | eHow.com http://www.ehow.com/about_5250961_rolecommercial-bank-industrial-sector.html#ixzz1BqBUtMlW

The process of trading currencies around the world is no longer simply a matter of banks exchanging currencies amongst themselves and today involves a very large number of different players with a wide variety of reasons for wishing to trade in currencies. Some for example will need to exchange currencies for the traditional purpose of buying goods and services overseas, but others will be participating in the market simply to earn short term profits from movements in the market or to influence exchange rates. Whatever the reason for a player's participation in the market, this diverse group affects the supply and demand within the market, and thus the exchange rates at any given moment in time, and so it is important to understand just who the key players are. Here, we look at the most important players - the commercial banks. The commercial banks account for by far the largest proportion of all trading of both a commercial and speculative nature and operate within what is known as the interbank market. This is essentially a market composed solely of commercial and investments which buy and sell currencies from each other. Strict trading relationships exist between the member banks and lines of credit are established between these banks before they are permitted to trade. Commercial and investment banks are a fundamental part of the foreign exchange market as they not only trade on their own behalf and for their customers, but also provide the channel through which all other participants must trade. They are in essence the principal sellers within the Forex market. One important thing to remember is that commercial and investment banks do not only trade on behalf of their customers, but also trade on their own behalf through proprietary desks, whose sole purpose is to make a profit for the bank. It should always be remembered that commercial and investment banks have exceptional knowledge of the marketplace and the ability to monitor the activities of other participants such as the central banks, investment funds and hedge funds. Of course the commercial banks have been at the center of the Forex market for many years now and their role has remained basically the same throughout this time. However, the arrival of the first electronic brokering systems (Reuter's 'Monitor Dealing Service' in the early 1980s and Reuter's 'Dealing 2000-1' in 1989) started to change the face of the market. It was however the arrival of Reuter's 'Dealing 2000-3' system in 1992, quickly followed by the launch of 'Electronic Brokering Services (EBS)' in 1993 with the ability to automatically match buy and sell quotes from dealers that changed the face of the Forex market and the very nature of the market. Electronic trading systems now allow dealers to conduct a number of trades simultaneously and to trade with much tighter spreads, greater efficiency, lower costs

and, most importantly, far greater transparency than was provided by the old telephone dealing system. The advantages of electronic dealing are clear for all to see, but it is the accessibility of the system and that fact that much greater access has been granted to it that has allowed many more players to enter the market alongside the commercial and investment banks.

Commercial BanksNo. Name Ownership1 Affin Bank BerhadL2 Alliance Bank Malaysia BerhadL3 AmBank (M) BerhadL4 Bangkok Bank BerhadF5 Bank of America Malaysia BerhadF6 Bank of China (Malaysia) BerhadF7 Bank of Tokyo-Mitsubishi UFJ (Malaysia) BerhadF8 CIMB Bank BerhadL9 Citibank BerhadF10 Deutsche Bank (Malaysia) BerhadF11 EON Bank BerhadL12 Hong Leong Bank BerhadL13 HSBC Bank Malaysia BerhadF14 Industrial and Commercial Bank of China (Malaysia) BerhadF15 J.P. Morgan Chase Bank BerhadF16 Malayan Banking BerhadL17 OCBC Bank (Malaysia) BerhadF18 Public Bank BerhadL19 RHB Bank BerhadL20 Standard Chartered Bank Malaysia BerhadF21 The Bank of Nova Scotia BerhadF22 The Royal Bank of Scotland BerhadF23 United Overseas Bank (Malaysia) Bhd.F