essay on commercial bank

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• Commercial Banks
• How They Work
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How Do Commercial Banks Work, and Why Do They Matter?

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

What Is a Commercial Bank?

The term commercial bank refers to a financial institution that accepts deposits and offers different banking and financial products. Commercial banks provide these services to people and businesses. Commercial banks make money by providing and earning interest from loans such as mortgages, auto loans, business loans, and personal loans. Customer deposits provide banks with the capital to make these loans.

Key Takeaways

• Commercial banks offer basic banking services, including deposit accounts and loans, to consumers and businesses.
• These financial institutions make money from a variety of fees and by earning interest income from loans.
• Commercial banks have traditionally been located in physical locations, but a growing number now operate exclusively online.
• Commercial banks are important to the economy because they create capital, credit, and liquidity in the market.

Yurle Villegas / Investopedia

How Commercial Banks Work

Commercial banks provide basic banking services and products to the general public, both individual consumers and businesses. The following table highlights some of the key services commercial banks provide to their retail customers:

Business banking services also include bank accounts, investments, and lending products. Commercial banks also provide their business clients with merchant services, which allows companies to accept payments electronically from their customers.

These financial institutions have traditionally been located in buildings where customers come to use teller window services and automated teller machines (ATMs) to do their routine banking. With the rise in internet technology, most banks now allow their customers to do most of the same services online that they could do in person, including transfers , deposits, and bill payments .

The money that customers deposit at commercial banks is insured by the Federal Deposit Insurance Corporation (FDIC) , including cash in savings accounts and CDs. Customers have the option to withdraw money upon demand, and the balances are fully insured up to $250,000. Therefore, banks do not have to pay much for this money.

A growing number of commercial banks operate exclusively online, where all transactions with the commercial bank must be made electronically. Because these banks don’t have any brick-and-mortar locations, they can offer a wider range of products and services at a lower cost—or none at all—to their customers.

How Commercial Banks Make Money

Banks make money by imposing service charges on their customers. These fees vary based on the products, ranging from account fees (monthly maintenance charges, minimum balance fees, overdraft fees, and non-sufficient funds [NSF] charges), safe deposit box fees, and late fees . Many loan products also contain fees in addition to interest charges.

Banks also make money from the interest they earn when they lend money to their clients. The funds they lend come from customer deposits. However, the interest rate paid by banks on the money they borrow is less than the rate charged on the money they lend. For example, a bank may offer savings account customers an annual interest rate of 0.25%, while charging mortgage clients 4.75% in interest annually.

Many banks pay their customers no interest (or very little) at all on checking account balances and offer interest rates for savings accounts that are well below U.S. Treasury bond (T-bond) rates.

Commercial Banks and Lending

Consumer lending makes up the bulk of North American bank lending. Some of the most significant categories include residential mortgages, automobile lending, and credit cards.

Residential Mortgages

Mortgages make up by far the largest share. Mortgages are used to buy properties, and the homes themselves are often the security that collateralizes the loan. Mortgages are typically written for 30-year repayment periods, and interest rates may be fixed , adjustable , or variable .

Although a variety of more exotic mortgage products were offered during the U.S. housing bubble of the 2000s, many of the riskier products, including pick-a-payment mortgages and negative amortization loans , are much less common now.

Automobile lending is another significant category of secured lending for many banks. Compared to mortgage lending, auto loans are typically for shorter terms and higher rates. Banks face extensive competition in auto lending from other financial institutions, like captive auto financing operations run by automobile manufacturers and dealers.

Credit Cards

Credit cards are another significant type of financing. Credit cards are, in essence, personal lines of credit that can be drawn down at any time. Private card issuers offer them through commercial banks.

Visa and Mastercard run the networks through which money is moved around between the shopper’s bank and the merchant’s bank after a transaction. Not all banks engage in credit card lending, as the rates of default are traditionally much higher than in mortgage lending or other types of secured lending.

Credit card lending delivers lucrative fees for banks. For example, interchange fees are charged to merchants for accepting the card and entering into the transaction. Banks also charge customers late-payment fees, currency exchange, over-limit , and other fees, as well as elevated rates on the balances that credit card users carry from one month to the next.

The total number of commercial banks in the United States in 2023.

Importance of Commercial Banks

Commercial banks are an important part of the economy . They not only provide consumers with an essential service but also help create capital and liquidity in the market.

Commercial banks ensure liquidity by taking the funds that their customers deposit in their accounts and lending them out to others. Commercial banks play a role in the creation of credit , which leads to an increase in production, employment, and consumer spending, thereby boosting the economy .

As such, these banks are heavily regulated by a central bank in their country or region. For instance, central banks impose reserve requirements on commercial banks. This means that banks are required to hold a certain percentage of their consumer deposits at the central bank as a cushion if the public rushes to withdraw funds .

Commercial Banks vs. Investment Banks

Both commercial and investment banks provide important services and play key roles in the economy. For much of the 20th century, these two branches of the banking industry were generally kept separate from one another in the United States, thanks to the Glass-Steagall Act of 1933 , which was passed during the Great Depression . It was largely repealed by the Gramm-Leach-Bliley Act of 1999 , allowing for the creation of financial holding companies that could have both commercial and investment bank subsidiaries.

While commercial banks traditionally provide services to individuals and businesses, investment banks focus on offering banking services to large companies and institutional investors . They act as financial intermediaries, providing their clients with underwriting services, merger and acquisition (M&A) strategies, corporate reorganization services, and other types of brokerage services for institutional and high-net-worth individuals (HNWIs) .

While commercial banking clients include individual consumers and small businesses, investment banking clients include governments, hedge funds , other financial institutions, pension funds , and large companies.

The Gramm-Leach-Bliley Act tore down the wall between commercial and investment banks but maintained some safeguards. For instance, it forbids a bank and a nonbank subsidiary of the same holding company from marketing the products or services of the other entity—to prevent banks from promoting securities underwritten by other subsidiaries to their customers—and placed size limitations on subsidiaries.

Examples of Commercial Banks

Some of the world’s largest financial institutions are commercial banks or have commercial banking operations—many of which can be found in the U.S. For instance:

• Chase Bank is the commercial banking unit of JPMorgan Chase ( JPM ). Headquartered in New York City, Chase Bank reported more than $3.39 trillion in assets as of December 2023.
• Bank of America ( BAC ) is the second-largest U.S. bank, with more than $2.54 trillion in assets and 6 million customers, including both retail clients and small and midsize businesses.

As noted above, banking has had to change with the rise of financial technology (fintech) . Some of the major commercial banks have an increased online presence. Some banks operate exclusively online. For example, Ally Bank ( ALLY ) is one of the major online commercial banks in the United States. The bank is headquartered in Detroit and has $196 billion in assets as of December 2023.

Is My Bank a Commercial Bank?

Possibly! Commercial banks are what most people think of when they hear the term “bank.” Commercial banks are for-profit institutions that accept deposits , make loans, safeguard assets, and work with many different types of clients, including the general public and businesses. However, if your account is with a community bank or credit union , it probably would not be a commercial bank.

What Role Do Commercial Banks Play in the Economy?

Commercial banks are crucial to the fractional reserve banking system, currently found in most developed countries. This allows banks to extend new loans of up to (typically) 90% of the deposits they have on hand, theoretically growing the economy by freeing capital for lending.

Is My Money Safe at a Commercial Bank?

For the most part, yes. Commercial banks are heavily regulated, and most deposit accounts are covered up to $250,000 by the Federal Deposit Insurance Corporation. Moreover, commercial and investment banking funds cannot be co-mingled by law.

Commercial banks are a critical component of the U.S. economy by providing vital capital to businesses and individuals in the form of credit and loans. They provide a secure place where people save money, earn interest, and make payments through checks , debit cards , and credit cards.

Commercial banks are typically in brick-and-mortar locations in cities and towns, many with extensive branch networks . A growing number have no physical location, however—instead, they are accessible online and through mobile applications.

Federal Deposit Insurance Corp. “ Understanding Deposit Insurance .”

IBIS World. " Commercial Banking in the US - Number of Businesses ."

Federal Reserve History. “ Banking Act of 1933 (Glass-Steagall) .”

GovInfo. “ Public Law 106-102: Gramm-Leach-Bliley Act ,” 113 Stat. 1349 (Page 13 of PDF).

Federal Reserve System. “ Statistical Release: Large Commercial Banks .”

Bank of America, Newsroom. “ Company Overview .”

Ally. " Who We Are ."

GovInfo. “ Public Law 106-102: Gramm-Leach-Bliley Act ,” 113 Stat. 1399 (Page 62 of PDF).

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What is a Commercial Bank?

Functions of commercial bank, 1. deposit acceptance, 2. credit creation.

• 3. Treasury and payments 

4. Agency and advisory

More resources, commercial bank.

A financial intermediary that profits from providing banking and lending products and services to businesses

A commercial bank is a financial intermediary that serves businesses by providing essential liquidity functions within an economy via various products and services.  

The institution accepts and manages deposits to earn fee income and as a low-cost source of funds. Funds can generate interest income via credit creation and offering credit facilities. Deposit acceptance and credit creation are two dominant revenue sources for commercial banks, with clients spanning a broad section of the economy.

Business banks and commercial banks jointly serve small and medium enterprises (SMEs). For example, clients may be segmented by “small business” under the business bank channel, with clients meeting middle market criteria served by the commercial bank. Regardless of the segmentation, banks cater to enterprises that rely partly or wholly on owners’ support. This reliance wanes as a business increases in size and complexity at or above the mid-market.

Typically, a commercial bank serves businesses with less complex needs than those supported by corporate banking and investment banking specialists.

Key Highlights

• A commercial bank is a financial intermediary that provides liquidity by bridging sources of capital from depositors and creating credit that can be extended to borrowers.
• Functions of a commercial bank include deposit acceptance, credit creation, treasury and payments, and other agency and advisory services.
• Business banks and commercial banks jointly serve small and medium enterprises (SMEs). Clients may be segmented by size and complexity.

As a financial intermediary , a commercial bank provides financial services to organizations of varying sizes, bringing together users (borrowers) and providers (depositors) of funds. To do so, they offer a wide variety of business-centric products and services. They are critical to any economy that relies on business credit and its creation.

According to McKinsey & Company Global Banking Annual Review 2021 [1] , worldwide revenue under the commercial and corporate/investment banking sector was $2,140 billion USD, larger than revenue from retail banking at $1,934 billion USD. Payment services revenue was valued at $868 billion USD. The total addressable market fosters high competition, from universal banks to banks that specialize in corporate and investment banking.

Functions may be categorized as follows. For specific products and services, please see business banking for details.

Deposit-gathering is a necessary function of any commercial bank and is required to offer credit products and services at a lower cost than external financing. Gathering deposits is the key to generating an acceptable return on equity, tied to the growth of a commercial bank’s credit portfolio and interest income. 

In the past, a bank was trusted to hold cash and valuables for safekeeping. Depositors paid for the custodial services. With fractional banking , a bank can lend a greater portion of its deposit to achieve higher margins and profitability. Cash and custodial fees are no longer the primary revenue source [1] . A commercial bank accepts deposits and pays interest to gather low-cost funds to grow its credit portfolio. 

Regulators set the minimum cash reserve a commercial bank must hold to support its deposit liabilities. Excess deposits may be used to create credit to lend via commercial loans and other credit products or lend to other institutions at the overnight rate . Credit creation is a critical function of a commercial bank. Interest is the highest percentage of revenue at commercial banks [1] . Credit portfolio performance and health are widely monitored performance measures.  

Many business credit products and services are available and match clients’ operational and strategic needs.

3. Treasury and payments 

To increase economies of scope and scale, as well as the share of wallet , commercial banks offer invoicing, collection, and also merchant (point-of-sale) solutions to support current asset requirements for businesses. Expenses paid via cheque, charge and credit cards, and electronic payments are offerings that support current liability requirements.  

Companies specializing in the payment segment have outperformed other business bank models over the past five years [1] and are an attractive area for high-tech due to the growth.

Commercial banks also offer many agencies and advisory functions due to their privileged position as financial intermediaries. Advisory services to manage risks from business-to-business activities, supporting trade credit with global entities participating in import and export, or documenting the performance of cross-border services, are some examples in this category.  

Institutions are highly regulated and integrated with global systems (e.g., SWIFT ), which is a function that is a barrier to entry for firms that do not operate on the same scale.

CFI offers the Commercial Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

• Business Banking
• Corporate Banking
• Merchant Bank
• Private Banking
• Commercial Banking & Financial Planning Career Booster
• See all commercial lending resources

Article Sources

• Global Banking Annual Review 2021 – McKinsey & Company
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Commercial Banks, Definition, Functions, Types, Roles

Commercial banks are profit-based institutions that offer financial products to their customers. Know all about Commercial Banks Functions, Definition, Types & Roles in this article.

Table of Contents

Commercial Banks

Commercial banks are financial institutions that are primarily engaged in accepting deposits from individuals and businesses and providing loans and credit facilities to borrowers. They are for-profit organizations that operate with the primary objective of generating profit for their shareholders.

Commercial banks are also known as retail banks or universal banks as they provide a wide range of services to retail customers, including payment services, investment services, and foreign exchange services, in addition to their core functions of deposit-taking and lending. Commercial banks are regulated by the central bank of the country and are subject to various regulatory and supervisory requirements to ensure the safety and soundness of the banking system.

Read about: List of RBI Governors of India

Functions of Commercial Banks

Commercial Banks play a crucial role in the economy by providing various financial services and products to individuals, businesses, and governments. Functions of Commercial Banks are classified into Primary Functions and Secondary Functions.

Read More: Types of Bank Accounts

Primary Functions of Commercial Banks

The primary functions of Commercial Banks revolve around the mobilization of funds from the public and the allocation of these funds to borrowers who require them for their various financial needs, thereby facilitating economic growth and development.

The primary functions of commercial banks include:

Accepting Deposits

Commercial banks accept deposits from individuals and businesses, including checking accounts, savings accounts, and time deposits such as certificates of deposit (CDs).

Providing Loans

Banks lend money to individuals and businesses for various purposes, such as buying a home, starting a business, or funding a project.

Issuing Checks

Banks provide customers with a chequebook, which they can use to write checks for payment.

Clearing Checks

Banks process checks written by their customers and those deposited by other banks.

Maintaining Accounts

Banks maintain account records for their customers, including transaction history, balances, and interest earned.

Providing Safekeeping Services

Banks offer safe deposit boxes for customers to store valuables and important documents.

Providing Currency Exchange

Banks provide currency exchange services for customers who need to convert one currency to another.

Providing Overdraft Facilities

Banks offer overdraft facilities to customers who need to borrow money temporarily to cover short-term expenses.

Read about: Finance Ministers of India List

Modern or Secondary Functions of Commercial Banks

The modern functions of commercial banks have evolved from the conventional functions of commercial banks in response to changing customer needs, technological advancements, and economic conditions. They can also be called as secondary functions of commercial banks. Here are some examples of how modern functions have evolved from conventional functions:

Facilitating Payments

With the advent of electronic payments, commercial banks have evolved their payment services to include online bill payment, mobile banking, and person-to-person payments.

Issuing Credit and Debit Cards

Credit and debit cards have become a ubiquitous part of modern banking, but they were not always available. In the past, banks primarily issued checks and travellers’ checks as a means of payment.

Managing Investments

Commercial banks have expanded their investment services to include a wider range of products, such as mutual funds, exchange-traded funds (ETFs), and online investment platforms.

Providing Foreign Exchange Services

While commercial banks have always offered foreign exchange services, the rise of global trade and travel has led to an increased demand for these services.

Offering Insurance Products

Banks have expanded their product offerings to include insurance products, such as life insurance and property insurance, to meet the changing needs of customers.

Providing Financial Advice

Banks have expanded their financial advice services to include retirement planning, investment advice, and debt management, as customers seek more guidance and support in managing their finances.

Read about: India’s GDP Growth Rate

Types of Commercial Banks

The types of commercial banks include:

Public Sector Banks

These banks are owned and controlled by the government, and they provide banking services to the public. Examples include State Bank of India, Punjab National Bank, and Bank of Baroda.

Private Sector Banks

These banks are owned and controlled by private entities, and they provide banking services to the public. Examples include HDFC Bank, ICICI Bank, and Axis Bank.

Foreign Banks

These banks are headquartered in foreign countries and have branches or subsidiaries in India. Examples include Citibank, Standard Chartered Bank, and HSBC Bank.

Regional Rural Banks

These banks are set up with the objective of providing banking services to rural areas. They are sponsored by a public sector bank, a private sector bank, or the government. Examples include Narmada Jhabua Gramin Bank, Pragathi Krishna Gramin Bank, and Baroda Uttar Pradesh Gramin Bank.

Co-operative Banks

These banks are owned and controlled by members who use the banking services provided by the bank. Examples include Urban Co-operative Banks and Rural Co-operative Banks.

Commercial Banks UPSC 

The functions of commercial banks are an important topic for UPSC (Union Public Service Commission) aspirants as it is included in the UPSC Syllabus under the Economics section of the General Studies Paper III. Understanding the functions of commercial banks is crucial for candidates preparing for the UPSC Civil Services Exam as it is a part of the Indian Economy and banking sector, which is an important component of the Indian Financial System .

Moreover, the topic of commercial bank functions is often included in the StudyIQ UPSC Online Coaching and UPSC Mock Test , which are popular resources for UPSC aspirants. Through these resources, candidates can gain a deeper understanding of the traditional and modern functions of commercial banks and how they have evolved over time. This can help candidates to answer questions related to banking and financial services in the UPSC Prelims and Mains exams.

Additionally, a strong understanding of the functions of commercial banks can also help candidates in the Essay paper, where they may be asked to analyze the role of banking in the Indian economy or discuss the impact of digital banking on the traditional functions of commercial banks.

Read about: GDP of Indian States

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Commercial Banks FAQs

What are 5 functions of a commercial bank.

1. Accepting deposits from customers 2. Providing loans and credit to individuals and businesses 3. Facilitating payments through various means, such as checks and electronic transfers 4. Offering investment products and services 5. Providing foreign exchange services to customers

What are the functions of commercial bank?

The functions of commercial banks typically include accepting deposits, providing loans and advances, facilitating payments, offering overdraft facilities, and providing foreign exchange services.

What are the 3 types of commercial bank?

3 types of commercial banks include- Public Sector Banks, Private Sector Banks and Foreign Banks.

What is a commercial bank an example of?

A commercial bank is an example of a financial intermediary that accepts deposits from customers and provides loans and other financial services. Examples include State Bank of India, HDFC Bank, and Citibank.

What banks are commercial banks?

Commercial banks include Public Sector Banks, Private Sector Banks, Foreign Banks, Regional Rural Banks, and Co-operative Banks.

What is commercial bank and its types?

A commercial bank is a financial institution that accepts deposits from customers and provides loans and other financial services. Types of commercial banks include Public Sector Banks, Private Sector Banks, Foreign Banks, Regional Rural Banks, and Co-operative Banks.

Who introduced commercial bank?

The concept of commercial banking dates back to ancient times, but modern commercial banking can be traced back to the 17th century when the Bank of England was established in 1694 as the first commercial bank.

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Home — Essay Samples — Economics — Banking — Functions of modern commercial banks

Functions of Modern Commercial Banks

• Categories: Banking

About this sample

Words: 729 |

Published: Jan 29, 2019

Words: 729 | Pages: 2 | 4 min read

Table of contents

Loans and advances, secondary / non-banking functions.

• Primary or Banking functions
• Secondary or Non-Banking functions.
• Subsidiary Activities
• Cash Credit
• Discounting of Bills
• Money At Call
• Direct Loans
• Collection: Commercial banks collect cheques, drafts, bills, promissory notes, dividends, subscriptions, rents and any other receipts which are to be received by the customer. For these services banks charge a nominal amount.
• Payment: Banks also makes payments on behalf of their customers like paying insurance premium, rent, taxes, electricity and telephone bills etc for such services commission is charged.
• Income — Tax Consultant: Commercial banks act as income tax consultants. They prepare and finalise the income tax returns of their clients.
• Sale And Purchase Of Financial Assets: As per the customers instruction banks undertake sale and purchase of securities, shares and any other financial assets. Nominal charges are charged by a bank.
• Trustee, Executor And Attorney: As a trustee, banks become the custodian and manager of customer funds. Bank also acts as executor of deceased customer’s will. As an Attorney the banks sign the documents on behalf of customer.
• E- Banking: Through Electronic Banking, a customer can operate his bank account through internet. He can make payments of various bills. He can even transfer money from one place to another.

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Commercial Banks Essay

Type of paper: Essay

Topic: Banking , Finance , Money , Venture Capital , Lending , Credit , Funding , Trade

Published: 01/25/2022

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Primary sources of funds for commercial banks are deposits, nondeposit liabilities and borrowed funds. Deposits are by far the largest funding source for commercial banks. They are finances deposited by account holders for future transactions and safekeeping. They include the typically saving and checking accounts that many people presently have. On the other hand, nondeposit liabilities form the second biggest source of bank funding. They represent a wide concept including various items like liabilities for capitalized leases, deferred income tax, borrowed money, mortgage indebtedness, accrued expenses and unpaid, and also the subordinated notes and debentures (Madura, 2012). Borrowed funds represent temporal borrowings mainly from extra needed reserves which are loaded to it by another bank or bank borrowing by its securities from another financial institution or large corporate client. Small banking institutions rely much on retail time depositions, savings and transactions whereas Large banks make good use of negotiable deposits in real time and nondeposit liabilities encompassing repurchased agreements as well as federal funding (Ryan-Collins et al. 2014). Investment securities, loans and leases, and cash assets continue to be the main uses of retail banking funds within the banking industry. Loans though are the principal use of commercial funds and also the primary way of earning income. They are typically created for fixed rates, terms and are always secured with actual property (Ryan-Collins et al. 2014) Commercial loans are comparatively more useful for the larger banks, whereas, small businesses and consumer loans, and residential mortgages matter more for smaller banks. All these loan types generate credit, though to varying degrees, liquidity risk for these financial institutions Commercial banks are exploring the trending trend credit card lending which provides lucrative fees for these banks. Default rates for credit lending are higher than those of mortgage lending or any other form of secured lending (Madura, 2012).

Madura, J. (2012). Financial institutions and markets. Mason, OH: South-Western Cengage Learning. Ryan-Collins, J., Greenham, T., & Werner, R. (2014). Where Does Money Come From?: A Guide to the US Monetary & Banking System. London: New Economics Foundation.

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• Commercial Banks and Financial Institutions

Banks are a very important part of our economy. They are the center of finance. People keep money in the banks because it is a safe and secure way to store the money . In the line with this, let’s learn further what are Commercial Banks and Financial Institutions.

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Commercial banks.

Banks have immense monetary assets and subsequently are dominant players in all sectors of financial markets like credit, cash, securities, foreign exchange and derivatives . Commercial banks have a critical part in the general financial position of the economy as they give assets to various purposes and additionally for various durations. A rate of premium is charged by banks for the loan.

Commercial banks give loans to organizations in either cash credits, overdrafts, term loans, purchase /discounting of bills, or issue of letter of credit. Banks help enterprises by providing loans to produce goods and contribute towards industrial growth and generate employment opportunities.

Technically, loans given by banks cannot be a permanent source of funds for the organizations as it has an interest rate and loan must be repaid within a specific period allotted. Before a loan is sanctioned by a bank, the borrowing party must provide some security. Banks also provide other services like merchant banking, corporate advisory services, portfolio management services etc.

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• Retained Earning, Trade Credit and Factoring

Merits of Commercial Banks

Every coin has two sides, similarly raising a loan from a bank has a sunny side as follows:

• Banks are flexible sources of finance as the amount to be received is decided by the borrowing party and can be increased and decreased according to business needs. Loans can be repaid in advance when funds are not required.
• Banks keep the borrower’s information confidential and secure .
• Banks provide assistance in time of need to businesses by providing funds.

Limitations of Commercial Banks

Certain limitations occur while raising funds from commercial banks. The limitations of raising funds from commercial banks are as follows:

• Banks are notorious for making a detailed investigation of the company’s background and affairs, financial structure, plan etc., and also to ask for the security of assets and personal sureties. This makes the procedure of getting funds difficult;
• Funds are generally available for short periods and renewal is uncertain and difficult;
• Banks put forth difficult terms and conditions before providing a loan.

Financial Institutions

The economic development of any country depends on the growth of the business sector. The well developed financial system helps the business to achieve growth by making funds available to them. For which, the government has established financial institutions all over the country to provide finance to businesses.

These institutions aim at promoting the industrial development of a country and are called ‘development banks’. The main role of a financial institution is to transfer financial resources from those who save it to those who are in need of financial resources for economic activity.

Central and state governments set up Financial Institutions. They provide both owned capital and loan capital for long and medium-term and supplement the traditional financial agencies like commercial banks. Financial institutions give technical assistance and managerial services to organisations. These institutions give large funds for a longer duration.

Merits Of Financial Institutions

The merits of raising funds from financial institutions are as follows:

• Here, finance is available even during periods of depression, when no other source of finance is available in the market.
• Besides providing funds, many of these institutions provide financial, managerial and technical advice and consultancy to business firms.
• For long-term business funds requirements, financial institutions are preferable as they provide long-term finance , which is not provided by commercial banks.

Limitations Of Financial Institutions

The limitations of raising funds from financial institutions are as follows:

• Restriction on dividend payment imposed on the powers of the borrowing company by the financial institutions.
• As these institutions come under government criteria, they follow rigid rules for granting loans. Too many formalities make the procedure time-consuming
• Financial institutions may have their nominees on the Board of Directors of the borrowing company thereby restricting the powers of the company.

Special Financial Institutions

1. industrial finance corporation of india (ifci).

IFCI set up as a statutory organization under the Industrial Finance Corporation Act 1948. Its main objectives were to provide help towards supporting the local advancement and urging new business visionaries to go into the urgent and needful sectors of the economy.

2. State Financial Corporations (SFC)

The State Financial Corporations Act, 1951 made the State Governments build up State Financial Corporations in their particular areas for giving medium and short-term funds to businesses which are outside the extent of the IFCI.

3. Industrial Credit and Investment Corporation of India (ICICI)

This foundation formed in 1955 as a public organization under the Companies Act. ICICI helps the creation, development and modernisation of industrial endeavours solely in the private sector.

4. Industrial Development Bank of India (IDBI)

In 1964, it was set up under the Industrial Development Bank of India Act, 1964 with a target to facilitate the working of other financial institutions including commercial banks.

5. Industrial Investment Bank of India Ltd.

It was set up as an essential institution for the restoration of sick units and was known as Industrial Reconstruction Corporation of India. It was reconstituted and renamed as the Industrial Reconstruction Bank of India in 1985 and again in 1997, its name was changed to Industrial Investment Bank of India.

Solved Question for You

Q: The Life Insurance Company (LIC) is a commercial bank. True or False?

Ans: This statement is false. LIC is not a commercial bank it is a financial institution. The main function of LIC is to provide the public with insurance services. It was set up in 1956 by the Government of India to serve the public.

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Sources of Business Finance

• Meaning, Nature and Significance of Business Finance  
• International Financing and Choice of Sources of Funds

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• List of Commerce Articles
• Functions Of Commercial Banks

Functions of Commercial Banks: Primary and Secondary Functions

What is commercial bank.

A commercial bank is a kind of financial institution that carries all the operations related to deposit and withdrawal of money for the general public, providing loans for investment, and other such activities. These banks are profit-making institutions and do business only to make a profit.

The two primary characteristics of a commercial bank are lending and borrowing. The bank receives the deposits and gives money to various projects to earn interest (profit). The rate of interest that a bank offers to the depositors is known as the borrowing rate, while the rate at which a bank lends money is known as the lending rate.

Related link:  Banking and its Type

Function of Commercial Bank:

The functions of commercial banks are classified into two main divisions.

(a) Primary functions 

  Accepts deposit : The bank takes deposits in the form of saving, current, and fixed deposits. The surplus balances collected from the firm and individuals are lent to the temporary requirements of the commercial transactions.

Provides loan and advances : Another critical function of this bank is to offer loans and advances to the entrepreneurs and business people , and collect interest. For every bank, it is the primary source of making profits. In this process, a bank retains a small number of deposits as a reserve and offers (lends) the remaining amount to the borrowers in demand loans, overdraft, cash credit, short-run loans, and more such banks.

Credit cash: When a customer is provided with credit or loan, they are not provided with liquid cash. First, a bank account is opened for the customer and then the money is transferred to the account. This process allows the bank to create money.

(b) Secondary functions 

  Discounting bills of exchange: It is a written agreement acknowledging the amount of money to be paid against the goods purchased at a given point of time in the future. The amount can also be cleared before the quoted time through a discounting method of a commercial bank.

Overdraft facility: It is an advance given to a customer by keeping the current account to overdraw up to the given limit.

  Purchasing and selling of the securities: The bank offers you with the facility of selling and buying the securities.

Locker facilities: A bank provides locker facilities to the customers to keep their valuables or documents safely. The banks charge a minimum of an annual fee for this service.

Paying and gathering the credit : It uses different instruments like a promissory note, cheques, and bill of exchange.

Types of Commercial Banks:

There are three different types of commercial banks.

  Private bank –: It is a type of commercial banks where private individuals and businesses own a majority of the share capital. All private banks are recorded as companies with limited liability. Such as  Housing Development Finance Corporation (HDFC) Bank, Industrial Credit and Investment Corporation of India (ICICI) Bank, Yes Bank, and more such banks.

  Public bank –: It is a type of bank that is nationalised, and the government holds a significant stake.  For example, Bank of Baroda, State Bank of India (SBI), Dena Bank, Corporation Bank, and Punjab National Bank.

Foreign bank –: These banks are established in foreign countries and have branches in other countries. For instance, American Express Bank, Hong Kong and Shanghai Banking Corporation (HSBC), Standard & Chartered Bank, Citibank, and more such banks.

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Examples of Commercial Banks

Few examples of commercial banks in India are as follows:

    1.  State Bank of India (SBI)

    2.  Housing Development Finance Corporation (HDFC) Bank

    3.  Industrial Credit and Investment Corporation of India (ICICI) Bank

    4.  Dena Bank

    5.  Corporation Bank

This was all about the ‘Functions of Commercial Banks’ that is elucidated in detail for commerce students. To know about more such concepts, stay tuned to BYJU’S.

Frequently Asked Questions on Function of Commercial Banks

What is the most important function of a bank.

The most important function of a bank is to collect deposits from the public and lend those deposits for the development of business, agriculture, trade and commerce.

What is the first commercial bank of India?

Bank of Calcutta is the oldest commercial bank in India. It was established in the year 1806. It was later renamed the Bank of Bengal. Currently it is known as State Bank of India.

What is the main purpose of commercial banks?

The main purpose of commercial banks is to provide financial services to the general public and also provide loan facilities to the business which helps in ensuring economic stability and growth of the economy. Therefore, we can say that credit creation is the most important purpose of commercial banks.

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Thanks for the info helped me out in completing my project

very helpful info. thanks a lot.

Really benefited for students and for job seekers in the banking industry.

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Commercial Bank Essay Examples

Have no time? Stuck with ideas? We have collected a lot of interesting and useful Commercial Bank essay topics for you in one place to help you quickly and accurately complete your college assignment! Check out our essay examples on Commercial Bank and you will surely find something to your liking!

The oldest bank in India, the State Bank of India, was established in June 1806. It is currently the largest commercial bank in the country. In 1935, the Reserve Bank of India took over central banking responsibilities from the Imperial Bank of India. After gaining independence in 1947, the Reserve Bank was nationalized and granted […]

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2013 Theses Doctoral

Three Essays in Banking

Antoniades, Adonis

This dissertation consists of three separate essays which address questions in the field of banking. The first two essays are motivated by the Great Recession, and study key aspects of the experience of commercial banks during this period. One is the impact of liquidity risk on credit supply, and the second is the effect of portfolio choices on the probability of bank failure. The third essay shifts the focus from commercial banks to M & A transactions, and studies the impact of a key provision in merger agreements on the initial offer premium and target firm value. In the first essay, titled "Liquidity Risk and the Credit Crunch of 2007-2009", I document the connection between liquidity risk and the credit crunch experienced during the financial crisis of 2007-2009. Using extensive micro-level data on mortgage loan applications, I construct a measure of the supply of credit that is free from demand-side bias. I then use this measure of credit supply to estimate the effect of cross-sectional differences in unused lines of credit and core-deposit funding on the supply of mortgage credit moving through the crisis. I find that lenders with higher liquidity risk contracted their supply of mortgage credit more. The channel of contraction was significantly stronger for larger lenders, which had the largest exposure to liquidity risk. The first phase of the contraction was due to liquidity risk arising from high exposure to lines of credit and was immediately followed by further tightening due to the collapse of the markets for wholesale funding. I estimate that the total contraction of mortgage lending due to liquidity stresses experienced by lenders during 2007-2009 was $41.5 billion - $61.9 billion, or 5.2%-7.8% of total mortgage originations during that period. In the second essay, titled "Commercial Bank Failures During The Great Recession: The Real (Estate) Story" I identify the channels through which shocks to the real estate sector contributed to the wave of commercial bank failures during the Great Recession. I focus on the banks' loan, marketable securities and credit line portfolios, and consider how choices which shifted the composition of each portfolio towards real estate products impacted the probability of bank failure. I find that augmenting a baseline model of failure with variables that capture the composition of these three portfolios improves the fit of the model by approximately 70% for small banks and 230% for large banks. I find no evidence that banks which held more of their loans in traditional closed-end mortgages suffered a higher probability of failure. Rather, it was investments in loans for multifamily properties and other non-household real estate loans, as well as off-balance sheet exposures to credit lines issued to non-household real estate borrowers, that are robustly identified as precursors of bank failure for both small and large banks. Exposure to open-end residential real estate loans contributed to the failure rates of small banks only. Exposure to private-label MBS is strongly associated with a higher probability of failure for large banks, but not for small ones. On the other hand, high holdings of agency MBS are associated with a higher probability of failure only for smaller banks, but this result is less robust. The third essay, titled "No Free Shop: Why Target Companies in MBOs and Private Equity Transactions Sometimes Choose Not to Buy 'Go Shop' Options" is joint work with Charles W. Calomiris and Donna M. Hitscherich. In this essay, we study the decisions by targets in private equity and MBO transactions whether to actively "shop" their initial acquisition agreements prior to the shareholders' approval of those contracts. Specifically, targets can insert a "go-shop" clause into their contracts, which permits them to use the agreement to solicit offers from other would-be acquirors during the "go-shop" window, during which the termination fee paid by the target is temporarily lowered. We consider the "go-shop" decision from the theoretical perspective of value maximization under asymmetric information, and also consider conflicts of interest on the parts of management, bankers, and attorneys that might affect the decision. Empirically, we find that the decision to retain the option to shop an offer is predicted by various firm attributes, including larger size, more fragmented ownership, and various characteristics of the firms' legal advisory team and procedures. These can be interpreted as reflecting a combination of informational characteristics, litigation risk, and attorney conflicts of interest. We employ legal advisor characteristics as instruments when analyzing the effects of go-shop decisions on target acquisition premia and value. We find, as predicted in our theoretical framework, that go-shops are not a free option; they result in lower initial acquisition premia, ceteris paribus. Our theoretical framework has an ambiguous prediction about the effects of go-shop choice on target firm valuation. Consistent with theory, we find no significant effect on abnormal returns from choosing a "go-shop" option.

• Global Financial Crisis (2008-2009)
• Bank liquidity
• Bank failures
• Liquidity (Economics)
• Management buyouts
• Banks and banking

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Commercial Banks in India: Meaning, Types & Significance

Commercial Banks (CBs) , as a significant part of the Banking System in India, play a pivotal role in the Indian financial sector. They are the backbone of the economy, providing the financial resources necessary for growth and development. This article of NEXT IAS aims to study Commercial Banks (CBs) in detail, including their classification, types, roles & significance, and other related concepts.

What are Commercial Banks?

• Commercial Banks (CBs) refer to those banks under the Banking System in India that run on a commercial basis. It means that they operate and offer services to earn a profit.
• They are regulated under the Banking Regulation Act, 1949.

Structure of Commercial Banks in India

As per the current structure of Commerical Banks in India, they are divided into two categories:

Scheduled Commercial Banks (SCBs)

SCBs refer to those Commercial Banks under the Banking System in India that are listed in the 2nd Schedule of the Reserve Bank of India Act, 1934 (RBI Act, 1934).

Non-Scheduled Commercial Banks (NSCBs)

NSCBs refer to those that don’t meet the criteria to be included in the 2nd Schedule of the Reserve Bank of India Act, 1934 (RBI Act, 1934). Being excluded from the schedule means they operate under a different set of regulations as compared to SCBs.

Difference between Scheduled Commercial Banks and Non-Scheduled Commercial Banks

Types of Scheduled Commercial Banks (SCBs)

There are various types of SCBs in India, as can be seen as follows.

Public Sector Banks (PSBs)

• Public Sector Banks (PSBs) are also known as Nationalized Banks.
• They refer to those financial institutions under the Banking System in India where the majority ownership, i.e. more than 50% of the shares, lies with the government.
• Barring the Reserve Bank of India (which is not a ‘bank’ in the technical sense), all other Public Sector Banks were created in India through the process of nationalization of banks in India.

Private Sector Banks

• Private Sector Banks are those banks under the Indian Banking System in which the private sector has a shareholding of more than 51%. For example, the ICICI Bank, Axis Bank, etc.
• Private Sector Banks, which form part of the Banking System in India, are mainly of two types – Old Private Sector Banks, and New Private Sector Banks.

Old Private Sector Banks

These are banks under the Banking System in India that were left out of the nationalization process (in 1969 and 1980) due to their small size and regional focus.

New Private Sector Banks

These are banks in the Indian Banking System that came into existence after 1991 with the introduction of economic reforms and financial sector reforms. After the adoption of LPG reforms in 1991, the Banking Regulation Act was amended in 1993. It allowed the entry of New Private Sector Banks in the Banking System in India.

Foreign Banks

Foreign Banks refer to those banks that have their headquarters in a different country but operate branches or subsidiaries within India. For example, HSBC, Citi Bank, etc.

Regional Rural Banks

• The concept of Regional Rural Banks (RRBs) was introduced in 1975 on the basis of the recommendations of the Narasimham Working Group (1975).
• They were established as part of the Banking System in India, under the provisions of an Ordinance passed in 1975 and the Regional Rural Banks Act, 1976.
• Some examples of Regional Rural Banks (RRBs) in India include – Paschim Banga Gramin Bank, Andhra Pragathi Grameena Bank, etc.
• Providing credit to the weaker sections of society including small and marginal farmers, agricultural laborers, artisans, and small entrepreneurs in rural areas at concessional rates of interest, and
• To mobilize rural savings and channel them for supporting productive activities in the rural areas, check the outflow of rural deposits to urban areas, reduce regional imbalances, and increase rural employment generation.
• The RRBs mobilize deposits primarily from rural and semi-urban areas and provide loans and advances mainly to small & marginal farmers, agricultural laborers, rural artisans, and other such segments of the priority sector.
• Overall, the RRBs are required to provide 75% of their total credit as priority sector lending.
• The RRBs combine the characteristics of a cooperative in terms of familiarity with rural problems and a commercial bank in terms of its professionalism and ability to mobilize financial resources.
• The equity of a Regional Rural Bank is held by the Central Government, the concerned State Government, and the Sponsor Bank in the proportion of 50:15:35.
• Each RRB operates at the regional level in various states and within the local limits as notified by the Government.
• Regional Rural Banks are regulated by RBI and supervised by the National Bank for Agriculture and Rural Development ( NABARD ).

Importance of Commercial Banks in India

Commercial Banks in India perform several critical functions in the Indian Financial System, which makes them significant for the Indian economy. Some of their crucial functions and significance can be seen as follows:

• Accepting Deposits : They accept various types of deposits from the public which form the main source of funds.
• Providing Loans and Advances : Banks are the primary source of funds for personal finance, agriculture, industrial sectors, and other economic activities through loans and credit facilities.
• Financial Intermediation : They facilitate financial mobility by mobilizing savings from depositors to borrowers, thereby enhancing economic efficiency.
• Financial Inclusion : As the largest category of banking networks in India, they cater to the maximum number of banking customers in India. This aids the cause of Financial Inclusion in India.
• Promotion of Digital Economy : They also provide sophisticated digital banking services that include mobile banking, internet banking, etc. This helps in the promotion of the Digital Economy and makes financial transactions seamless and more accessible to the general public.

Various types of Commercial Banks in India not only support economic growth but also play a significant role in social transformation by promoting financial inclusion. As they continue to evolve, these institutions will remain central to the economic narrative of India, driving future development and fostering a more inclusive economic environment.

FAQs on Commercial Banks

What are commercial banks in india.

They are those banks under the Banking System in India that run on a commercial basis and operate to earn a profit.

How many types of Commercial Banks are there in India?

They are of, broadly, two categories – Scheduled and Non-Scheduled. While there is no major Non-Schedule Commercial Bank in India, there are various types of Scheduled Commercial Banks viz – Public Sector Banks (PSBs), Private Sector Indian Banks, Private Sector Foreign Banks, and Regional Rural Banks (RRBs).

Which is the largest Commercial Bank in India?

Based on the branch network and loan portfolio, the State Bank of India (SBI) is the largest Commercial Bank in India .

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Quantitative easing and quantitative tightening: the money channel

Staff working paper no. 1,090.

By Michael Kumhof and Mauricio Salgado-Moreno

We develop a DSGE model in which commercial banks interact with the central bank through the reserves market, with each other through reserves and interbank markets, and with the real economy through retail loan and deposit markets. Because banks disburse loans through deposit creation, they never face financing risks (being unable to fund new loans), only refinancing risks (being unable to settle net deposit withdrawals in reserves). Permanent quantitative tightening, while reducing the equilibrium real interest rate, has significant negative effects on financial and real variables, by increasing the cost at which reserves-scarce parts of the banking sector create money. Temporary net deposit withdrawals, which affect the funding cost and loan extension of one part of the banking sector at the expense of another part, have highly asymmetric financial and real effects. The quantity and distribution of central bank reserves, and the extent of frictions in the interbank and reserves markets, critically affect the size of these effects, and can matter even in a regime of ample aggregate reserves. Countercyclical reserve injections can help to smooth the business cycle. We find that countercyclical reserve quantity rules can make sizeable contributions to welfare that can reach a similar size to the Taylor rule.

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• Publications

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Using data on South Africa’s commercial banks in the period 2005–2018, this paper investigates the impact of bank regulation on bank performance. The study uses a fixed effects model to run the regression model as well as the data envelopment analysis approach to estimate efficiency scores. We find a number of interesting results. First, we find a negative relationship between capital stringency and bank performance, suggesting that increased capital requirements force banks to increase their reserves, adversely affecting their performance. Second, we find a positive relationship between activity restrictions and bank performance, indicating that this kind of regulation, which may well be good for the public, as argued by the public interest view of regulation, is also good for the regulated banks. Third, we find a negative and significant relationship between supervisory power and bank performance. Fourth, we find a positive and significant relationship between the market discipline index and bank performance, suggesting that by creating environments characterised by high market discipline, the regulatory regime enhances the ability and incentives of private investors to efficiently monitor banks. This ensures better management of banks, ultimately increasing profitability. Overall, the study finds that regulation matters for bank performance.

350 Banking Essay Topic Ideas & Examples

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• The Banking Model of Education In the banking concept of education, the teacher is considered to be knowledgeable and experienced in contrast to the students who are supposed to be “blank slates,” or, in other words, entirely ignorant of the […]
• Internet Banking Effects and Results Internet banking has certainly played a key role in the increase and ease of banking services the world over and the reasons for this are not difficult to discern.
• The Banking Concept of Education by Paulo Freire This is one of the details that should be taken into account by the readers. This is one of the pitfalls that should be avoided.
• Money and Banking: General Information The essay gives the definition of money and gives a brief description of the functions of money. As a store of value, money can be saved reliably and then retrieved in the future.
• JPMorgan Chase Bank: Ratio Analysis The ratios are debt-to-equity, the interest coverage ratio, the equity ratio, and the debt-to-asset ratio. For the years 2017, 2018, 2019, and 2020, JPM had a fixed turnover ratio of 7.
• Wellfleet Bank Case Study Under Group Risk Committee, the company further delegates duties to: reputational, country, operational, group credit, market risk, business risk, and business risk committees.
• The 2008 Banking Crisis in the Documentary “Inside Job” Using the documentary “Inside Job”, the paper presented below asserts that the malpractices of different banking experts, the ethical dilemma revolving around ratings agencies’ actions, and the Gramm-Leach-Bliley and the Glass-Steagall Acts influenced the nature […]
• Traditional Versus Modern Banking Essay Traditional banking is characterized by the application of strict regulations, while modern banking is differentiated by the introduction of new laws that resulted in the deregulation of key aspects of the banking industry.
• Impact of Cyber Crime on Internet Banking The paper evaluates a con article on ‘The impact of cybercrime on e-banking’ [1]. H2: Identity theft will have a negative impact on the adoption of electronic banking.
• Ethical Dilemma With the Bank Teller On the other hand, the bank calls for honesty in service and client protection, and given that the teller took the money without permission from an inactive account belonging to a customer it is professionally […]
• Role of Central Bank If central bank offers credit to the banks at a higher rate, then the rate of interest that commercial banks will offer loans to the public will be high; this reduces the attractiveness of the […]
• Islamic Banking The involvement of institutions and government led to the application of theory to practice and resulted in the establishment of the Islamic banks”.
• Bank of America’s Business Model Elements The organizational structure leverages Bank of America in the following ways. Bank of America has categorized its throughputs into five categories, which are the core products, processes, and services offered.
• The Concept of Usul Fiqh and Qawaid Fiqhiyyah: Shariah and Islamic Banking For such convictions, this essay explores the concept of Usul Fiqh and Qawaid Fiqhiyyah in respect to issues regarding the influence of Shariah on Islamic banking practices Under the Islamic community, Fiqh is a terminology […]
• Ijtihad in Islamic Banking Even though Shariah principles forms the main legal foundation in which most of Islamic banking products and services are based, Ijtihad enables the flexibility of the Shariah principles to suit the changing needs of the […]
• Factors Which Impact Barclays Bank Political factors refer to the government policies that affect businesses and the extent to which the government intervenes in the economy.
• Corporate Governance Statements: BHP Billiton and National Australia Bank This is to say that corporate governance requirements differ from company to company and from a broader perspective, the success or failure of a given company differs with the corporate governance statement of the company.
• Barclays Bank Description Introduction Barclays bank is a UK-based Multinational Corporation headquartered in London and operates in the financial niche. The universal bank was established in 1860 in London as a goldsmith’s lending business offering people loans and saving options. The bank’s resilience in the corporate domain made it navigate all the challenges, and it still operates to […]
• Lloyds Banking Group’s Situational Analysis These products the company has diversified in various products and markets in an attempt to grow and increase its share in the market.
• Personal and Organizational Development in Banking My career plan is as in the figure below: – My career goal is to find a job in a bank and gradually grow through the ranks as I gain financial management related skills and […]
• Sustainable Development: The Banking Sector Financial regulators need to establish strong codes of conduct to ensure banks comply with social and environmental regulations. Banks need to include environmental and social compliance in the loan application criteria, before giving out credit […]
• Is Bonus Banking the Answer? Bonus banking is an incentive plan where some part of the bonus is put aside or banked in a reserve fund rather than paying out the entire bonus amount to the employee. The last variable […]
• Citibank’s E-Business Strategy and Competences Citibank has incorporated the use of e-business in its operation so that it can meet the needs of its customers and to withstand the market pressures which have been changing drastically.this paper has established the […]
• Mobile Banking Innovation In the mobile industry, mobile banking is one of the recent innovations that have influenced the operations of the telephone/mobile phone industry positively.
• Money: Evolution, Functions, and Characteristics It acts as medium of exchange where it is accepted by both buyers and sellers; the buyer gives money to the seller in exchange of commodities.
• Bank’s Provided Opportunities to Attract Consumers The offers are the following, to choose the credit card which backs cash when the consumer makes an online purchase, the other option is take the credit card which backs cash when the consumer makes […]
• Grameen Bank’s Socially Responsible Innovation The bank targets the poor and marginalized with both financial assistance and information to help them grow. The Grameen Bank has continued to register impeccable performance on the social, economic, and environmental dimensions.
• Wells Fargo Banking Scandal: Ethical Analysis The structure and the business model of Wells Fargo allowed the emergence of the working environment that incited the employees to unethical behaviors.
• Safaricom’s Mobile Banking When Safaricom launched M-PESA, it commissioned agents in different parts of the country; the agent’s work was primarily to receive deposits from customers and electronically transfer this to the client’s M-PESA account.
• Analysis of Al Hilal Bank Launch At the time when Al Hilal was launched, the situation in the world financial system was not favorable. It can be concluded that the banking market at the UAE was not favorable at the time […]
• The Pros and Cons of Investment Banking The investment banks are also referred to as proprietors since they are involved in trading of marketable instruments using their own money as opposed to that of investors.
• Current Problems of the Banking Industry At the rudimental level, dynamism and uncertainty of the technological, economic and political environments have made company’s see the light of flexibility and responsiveness.
• Customer Satisfaction Management in Banking Sector This fact and a pivotal role of customer satisfaction in the service segment highlighted the essentiality of conducting additional research to discover the most suitable research methods.
• Market Elasticity’s in Banking Industry Price elasticity of markets “refers to the degree of change in quantity demanded or supplied of a commodity due to a change in price of the commodity” The formula is: P.E.
• Islamic Banking Sector Issues The key aspects of the Islamic banks in the region are the profit and loss sharing, transparent dealing, lack of interest, lack of speculation and no gambling.
• The Wall Street Crash Impact on the World’s Banking System The Wall Street Crash of 1929 was one of the most impactful events in the financial history of the United States that also influenced the flow of the global banking operations.
• RBS Citizen Bank Culture and Change Secondly, RBS citizen should consider involving its employees in the design of new changes within the organization. In accordance to this, the RBS citizen administration team explains to their employees the motive of the changes.
• The Employee Benefits Provided by the Bank of America In the process of applying for a job or assessing a certain company, it is crucial to learn about their advantages and unique features. In conclusion, Bank of America features various benefits that provide employees […]
• Legal Issues in the Banking Industry The second problem is the complexity of banking operations for foreigners and the low-educated segments of the population. Thus, in banking, employees often face the problems of sexual harassment, complex mechanisms for clients, and digitalization.
• Cryptocurrency and Its Impact on the Banking Industry Advanced coding is used to store and transfer cryptocurrency data between the wallet and a public ledger, and encryption is used to confirm transactions.
• Overfitting and Bias-Variance Trade-Off in Banking While the training set represents most of the data, the testing set is used to test accuracy by measuring performance separately in the two separate parts of the data set.
• Digital Trends & Sustainability in Banking It would be accurate to refer to banking as the financial hub of the economy because it is a major industry in the service sector.
• The National Bank of Kuwait’s Improvement However, the constant improvement of technology and the introduction of innovations forced the bank to reconsider its policy and introduce a new system.
• Ransomware in the US Banking Industry The mismatch can lead to a lack of trust and reputational damages. Data pertaining to the business plans and visions can also be accessed, making it vulnerable.
• Tesla Inc.’s Banking Structure and Investments According to Saberi, it represents almost 4% of the world GDP, and, in the context of developed economies, 1% of automotive industry growth triggers respective 1,5% growth in the country’s GDP. Due to the specificity […]
• Leadership at Qatar National Bank This paper examines in detail the phenomenon of leadership and its classic types in the light of improving the overall effectiveness of the work team.
• Interpersonal Leadership Skills in Bank of America However, it is clear that the issue is not the demographics but the inefficient leadership in the company and the lack of interpersonal skills that would make people want to work at Bank of America.
• Big Data Analytics in Central Banking In addition, the rate is integral to the overall cost of living, which parameter is in a cause-and-effect relationship with inflation.
• Workplace Inclusivity at International Bank of Commerce Even if employees of color do not ascribe significance to the unequal distribution of power in the bank, the lack of diversity is evident.
• Abu Dhabi Commercial Bank PJSC The discussion takes a general overview of the company, its mission and vision statements, strategic goals, and key objectives. The key objectives Abu Dhabi Commercial Bank wants to realize include: Growing transaction volumes and assets […]
• Banking System: The Brief Analysis This is a fictional story that comes perilously near to the reality about the basic foundations of modern society. The primary objective of this story is to demonstrate reality’s simple math and the existing banking […]
• Bank Pekao S. A.: Performance and Strategy Compared to its peers in Poland, Bank Pekao is uniquely placed as it launched a brokerage house and made practical biometrics technology in the banking industry, contributing heavily to the bank’s assets quality and investment […]
• Financial Analysis of Al Ahli Bank of Kuwait Al Ahli Bank of Kuwait’s main competitors include Commercial Bank of Kuwait SAK, Gulf Bank KSCP, Burgan Bank SAK, and the National Bank of Kuwait.
• Banking Sector of the United Kingdom At the same time, the banking sector of the United Kingdom had to balance between its financial losses and the ability to provide loans and debt-moratoria in order to support the country’s financial stability. In […]
• Case Study of Hong Kong Shanghai Banking Capital From HSBC’s perspective, money laundering represents one of the most significant internal risks due to the worldwide presence, especially in certain economic areas with facilitated financial regulation and considerable economic influence, such as Hong Kong […]
• Risk Factors Affecting Bank Nordik’s Operations and Risk Management Control measures adopted by the firm to manage these risk categories are explored in this investigation and the findings used as a justification for the development of a robust risk management plan.
• The Albilad Capital Bank’s Mission and Vision Since the bank is striving to renew its mission and vision from the start, it is crucial to identify the values and vectors of direction.
• National Australia Bank’s Sustainability Challenges One of the reasons for the success of NAB is the overall strategy of the company, which focuses its capital management on adequacy, efficiency, and flexibility, maintaining the economic balance to support and strengthen the […]
• Aspects of Electronic Banking The significance of our study is in the critical issues of e-banking and the areas of improvement that the banks can eliminate or improve to boost customer satisfaction.
• The Lebanese-Canadian Bank’s Money Laundering The bank was later banned from using the dollar by the American treasury; this resulted in the collapse and eventual sale of the bank.L.C.B.had to pay a settlement fine of one hundred and two million […]
• Alonzo vs. Chase Manhattan Bank, NA Case Study However, the author provides an insight into the matter by claiming that the policy concerning workplace discrimination took a dramatic turn in the early 1960s upon adoption of the Title VII of the Civil Rights […]
• Political Theories and the World Bank Known as ‘power politics’ or means to exercise power World Bank massive financial institution which poorer nations depend on for subsidies Manner of soft power of the richer states contributing to the World Bank […]
• Misconduct in Banking, Superannuation and Financial Services The company was included in the Royal Commission report due to ASL and NM releasing the trustee duties of their funds because of the AMP Group membership.
• Sexual Harassment in Meritor Savings Bank vs. Vinson Case Mechelle Vinson, a defendant and a former employee of the plaintiff bank, filed a lawsuit against the bank and its bank manager Sidney Taylor. Sidney Taylor was the vice president of the bank and the […]
• Considerations in Investment Banking However, to ensure a fruitful outcome, the CFO should choose a qualified and experienced investment banker to represent the facility. Secondly, the selected investment banking firm is expected to act as both a matchmaker and […]
• The Impact of Bank on the Cost of Financial Intermediation Also, since the two variables are not controlled; bank concentration and national institutions, the research argues, however, that the measures of concentration capture the efficient structure theory and market power theories.
• Hongkong and Shanghai Banking Corporation: Approach to Operating in China According to Luthan and Doh, centralization played a significant role in HSBC’s success in the new market. It was also the first company to establish a locally incorporated entity in Taiwan and Vietnam.
• A Problem in Implementation of CSR in the U.S. Banking Industry Corporate social responsibility is essential in this age of intense globalization and competition – essential for firms to survive in the competition and also important for firms.
• The Bank of America Corporation: Planning & Organizational Analysis The Bank may use environmental adaptation planning activities to enhance external relations with stakeholders such as customers, governments, suppliers and the public.
• Digitalization of E-Commerce in Bank of Ireland The interview with the Senior Director in the Property Finance division of Corporate Banking, Michael Murray, revealed the importance of the advance of digitalization for the Bank of Ireland. These and other technologies will enable […]
• The 1920 Farrow’s Bank Failure and Its Causes In this context, the company would be resilient to any stresses, and the outcome of the situation may be the opposite.
• The Mountain Bank’s Strategy Analysis The most suitable competitive business strategy, in the case of the Mountain Bank is to build the presence in the market of consumer lending and corporate banking.
• Banking: Financial Transaction Risks In that case, even the losses-free termination of the transaction would be a failure since the goal of acquisition would remain unachieved.
• Bahrain Development Bank: Analysis To identify and develop ways of assessing learning at the working station to facilitate the employees’ skills and competencies. To identify ways of integrating training capability and focus on the organizational processes through skills acquisition […]
• ICBC Bank – China: Overview The shifted focus of ICBC’s policy became the major contributor to the growth of the company on the international market and the subsequent cultural changes.
• Customers’ Perceptions of M-Banking To find answers pertaining to the major objectives of the study, the gathered data was analysed using SPSS v.23. An exploratory factor analysis was run to group the existing variables into factors, and also to […]
• “Attitudes Towards Mobile Banking” Article by Sohail & Al-Jabri In the introduction of the article, much background information, an overall evaluation of the situation in the banking industry, and the purposes of the study are discussed.
• The Bank of Toroda: A Stakeholder Approach “Stakeholders are persons, organizations and groups that have to be considered by managers, directors as well as front office workers.”
• Corporate Bias in the World Bank Group’s International Centre The institution judges the Pan Rim case neglecting the El Salvador government’s views, local communities, and the Catholic Church. It does not prioritize the protection of the environment and human rights.
• Alinma Bank Industry Analysis. Case Study The demand for the services is another essential factor that shows the industry is profitable. The presence of many investors in the country shows that the demand for financial services is high.
• Impact of Online Banking on Dubai International Bank DIB has developed t-banking (telephone banking), e-banking (electronic banking) and m-banking (mobile banking) from this trend.
• Phishing Victimization on Internet Banking Awareness Therefore, the study is meant to determine and evaluate consumer susceptibility to e-banking victimization through phishing attacks. Subsequently, the study will be designed to evaluate the effectiveness of phishing victimization training to E-banking consumers.
• ICT: E-Banking and Firm Performance ICT is concerned with storage, retrieval, manipulation and transmission of digital data. ICT involves software, hardware and systems.
• P&G & Royal Bank of Canada’s Securities Valuation The discussion in the paper focuses on the Two-Fund Separation theorem. The discussion also reveals that the asset allocation problem focuses on the allocation of resources between two risky assets.
• Governance Failures in Australian Banking Sector Firstly, executive compensation in the Australian banks was not tied to performance outcomes, and, secondly, the major problem in the CEOs’ conduct was related to the field of ethics.
• Hongkong and Shanghai Banking Corp and Wells Fargo Speaking of the Income Statement, Wells Fargo wisely divides it into interest income and expense and non-interest income and expense, and this aspect eases the overall calculations of financial ratios.
• Noor Bank’s Balance Sheet and Income Statement The bank’s operating income from Islamic banking and sukuk amounted to more than 895 million AED compared to 678 million AED in the previous year.
• Banking Institution and Transaction Regulations In the case of Brittany, it is the duty of the bank to authenticate all transactions on her account. In the process of negotiation, most parties often focus on the substance of the deal and […]
• Bank of America’s Strengths and Weaknesses Interestingly, even non-banking institutions such as Quicken Loans and Leader Bank have started to claim a share of the market held by Bank of America. The root cause of the Bank’s mortgage troubles emanated from […]
• Bank of America’s External Analysis in 2013 Among the major lenders in Massachusetts, for instance, Bank of America was the only bank that recorded a notable decline in the volumes of purchase and refinancing loans relative to other years. Apparently, competition has […]
• Sales Portfolio: A Bank Mortgage and Marketers Although a mortgage has several advantages to both the commercial institution and the customer, it has its share of disadvantages. Many clients are reluctant to take up a mortgage because of the high interest rates.
• Banking With WikiLeaks If Wiki Leaks has the right to be served by a financial institution, the company must ensure that it does not harm the operations of the institution.
• The Essence of the Islamic Banking System Riba of the Quran is called Riba An-Nasiyah and riba of the of Sunnah is called Riba Al Fadl. In the context of Islamic banking system, gharar is excessive uncertainty.
• Factors Effecting Bank – Borrower Relationship in UAE The Middle East region’s banking industry is one of the fastest growing in the world. It is projected that the industry will get even better in the future due to the nature of the business […]
• Bank of China Limited: Overview That said the objective of my effort is to present a report on the Bank of China’s IPO of 2006. This listing was exceptional since it was the only bank of China that had managed […]
• Banking Industry: Successes and Failures These banks are regulated by the federal government and are required to be members of the Federal Reserve. However, these banks are not compelled to be members of the Federal Reserve.
• Commercial Bank of Australia Ltd vs. Amadio The decision by the court held that the bank manager and the commercial bank were aware of the special disadvantage of the Amadios and made no substantive efforts to ensure that Amadio clearly understood the […]
• Mortgages Offered by the RBC Royal Bank From your profile and to the best of my knowledge, I take pride to inform you that we have five financial investment products that best suit you.
• Banking and Financial Markets: Asset-Backed-Securities Thus, there are four notable main stages in the process of creating the asset-backed securities and these include: Segregation of assets from originator or seller Creation of a specialized functional vehicle to seize the asset […]
• Analyzing and Managing Systematic Risks in Banking Risk assessment is done to ascertain the nature of task before deciding the strategy of responding to it. Analysis and management of risks requires one to identify the nature of the risk involved.
• Islamic Banking in Dubai and the UAE In an Islamic environment, the approach to financial operations such as the law of contracts, nature of property, interest rates and business transactions is quite different from the rest of the world.
• Deutsch Bank Analysis and Performance Forecast The big bonus for banks came in the form of the Securitization Bill, which gave banks and institutions opportunity to recover from bad debts.
• International Banking: New Basel The combination of the four changes in 2004 intended to speed up off-balance sheet mortgage securitization as the main avenue to drive the revenue together with the share price of banks.
• Barclays Bank: Management Accounting Report This team assists the management in the gathering of information that is unilaterally used in management accounting to address specific challenges in the bank.
• BNP Paribas International Banking Networks In the United States, the bank has a strong presence in the western part of the country, whereas, in Asia, it has fixed a secure and fast-growing business.
• Riyadh Bank: The Historical Financial Analysis By the end of the third quarter of the year 2011, the organization has recorded a 15% increase in its net profit.
• Budgeting of HSBC Bank UAE Branch Looking at their financial statements one will note that they are quite detailed with lots of financial items, which are specific to the bank, and understanding them requires referral to the notes accompanying the financial […]
• Westpac Banking Corporation Analysis and Forecast The entry of foreign banks as well as the building societies which were speedily developing into banks and the emergence of other financial institutions increased competition in the Australian financial market.
• The Analysis of Banorte Bank in Mexico The scrutiny of the bank’s fundamentals and variables of the bank form part of the report. Financial analysis and forecast of the bank’s financial performance is the major objective of the report.
• Case on Private Equity in Saudi American Bank The problem was that the firm’s investment manager was investing for the first time and therefore, he had many questions to ask before he finally made the decision to invest in the company.
• Commercial Banks and the Northern Rock Crisis Bank Roles Prior to the actual analysis of the case of the Northern Rock bank is a brief background that elaborates the scenario of the Northern Rock Bank Crisis.
• Bank (HSBC) and Life Insurance Company (Protective) The report also investigates the profitability of the two companies, the metrics used to measure profitability, variation in the last five years and the reasons for these variations.
• Investment Banking and Operations Management In a steady market, the bank uses the information conveyed in prices of assets to significantly allocate capital resource to the most profitable and ultimate use.
• Investment Banking and Global Operations Management Essentially, banks engage in securitization process to increase their uncertain profit opportunities and also to adjust their asset portfolio Entering into the security markets through the perspective of the original financial institution is of great […]
• Online Banking and Cryptographic Issues A disadvantage of online banking is that it inherently reduces the interaction between banks and their customers and in addition, security is not guaranteed in this type of banking, that is, hackers have a chance […]
• The Failure of Superior Bank The crisis in Superior Bank was associated with the fact that the directors failed to observe and address risky financial management strategies that were followed in the organization, and the regulators did not pay much […]
• Criminal Law & Bankruptcy: Bullard vs. Blue Hills Bank The action by the court caused Bullard to appeal against the decision to the BAP to which the BAP concluded that the denial was not the final.
• Time Value of Money: Choosing Bank for Deposit The value of the money is determined by the rate of return that the bank will offer. The future value of the two banks is $20,000 and $22,000 for bank A and bank B respectively.
• First Citizens Bank’s Financial Income in North Carolina The income analysis pertains to a comparison of the profit, revenue, income and profit of the institution in the recent year for analysis on the position of the company.
• Financial Risk Management in Islamic Banking Ahmed defined Islamic financial as a system of finance based on principles of Islamic banking, and that operates under the ethics of Islamic teaching.
• Finance & Banking: Blades Corporation This is because of the volatility of international currencies and the risk that the changes in the value of the currencies will result in a loss from trade receivables and/ or payables depending on the […]
• The Role and Functions of Law in the Banking Industry The first part provides answers to questions regarding the Cipollone versus Liggett Group case, the second part discusses the role and functions of law in the banking industry, and the third part looks at future […]
• The Crime of Robbing the Big City Bank Combined with eyewitness testimony and video evidence, it can be stated beyond all doubt that Clark was guilty of the crime.
• Citi Bank: Business and Corporate Law The enforces a number of Acts that include the Investment Advisers Act of 1940, the Securities Act of 1933, the Securities Exchange Act of 1934, the Investment Company Act of 1940, and the Sarbanes Oxley […]
• The Banking Industry: Brief Analysis They include the open market operations that are meant to regulate the amount of money in the reserve. This is important because it influences the transactions in the other parts of the economy, such as […]
• First Gulf Bank Financial Activity The retail bank consists of accounts, deposits, credit cards, safe deposit lockers, loans and mortgages; the First Gulf Bank is the largest bank in United Arab Emirates with shareholder equity of over AED 20 billion […]
• Forecasting of National Bank of Greece (Nbg Bank) Current liabilities are short term obligations that occur in the course of running the firm and have direct associations with sales.
• Banking Analysis: Review The chart shows a continuous increase, with a few years of drop; but the scale of the chart for the most part is upward. The trend of consolidation comes across in the presentation of the […]
• Islamic Finance and Banking. Basic Islamic Principles The Islamic banks approach to lending is very unconventional in that the bank does not give out the loan to a borrower per se, but instead acquires the asset on behalf of the borrower who […]
• World Bank Mining Industry Forecast Therefore, this document will use the data provided by the bank to give a projection of mining, in a global capacity.
• Corporate Cyber Risk Assessment: Bank of America Arguably, one of the most epic accomplishments of the 21st century was the invention of the computer and the subsequent creation of the internet.
• Ethics in the Banking Industry in the UK It may be argued that organizations may require ethics as the part of their practices in the industry, but it may not be the essential or core part in any institution, specifically in the organizations […]
• The Economy: The US Banking System Capital formation refers to the distraction of the economy’s productive capacity for the creation of capital goods which eventually increase the productive capacity in the future.
• Banking Contract and Fiduciary Obligations The paper explores the relationship between a bank and a customer from the perspective of fiduciary obligations of a banking contract.
• Bank Loans and Deposits Role in Saudi Arabia Monetary System The major feature of Islamic banking is confined to the bank’s concept of Profit and Loss Sharing, in this arrangement the banks depositors are strictly speaking not creditors to the bank per se, but rather […]
• Case Analysis on Banking Industry of Germany The globalisation and competition of the banking industry have increased because of the growing importance of banking in the marketplace. The decisions of Basel II and the EU for public sector banking and capital markets […]
• Bank Fraud: Easyloan Bank Ltd and ABC Pty Ltd This is similar to the situation in the US where the office of the Attorney and a section of the Criminal Fraud Department of Justice handles mortgage prosecution cases.
• Unremunerated Reserve Requirement Policy: Central Bank of Thailand Under the impact of the World War II, the government of Thailand upgraded the status of the Bureau to that of a central bank by passing the Bank of Thailand Act in the year 1942.
• Solvency Risk and Liquidity Risk of a Bank Differences The aim of this report is to identify the meaning of the solvency risk, liquidity risk, credit risk, dynamic provisioning, and the effective control of the solvency risk besides the problems which the bank encounters […]
• The Banking Crisis of 2007-2010 The role of Credit Rating Agencies in the subprime mortgage-related securities market turmoil was scrutinized by the Securities and Exchange Commission.
• Banco Popular Español and the Saudi Investment Bank In this paper, the analysis of two banks and their risk management will be given: Banco Popular Espa ol S.A.with its abilities to take care of liquidity, credit, and other risks and the Saudi Investment […]
• Comparative Study of Conventional and Islamic Bank Performance in the GCC Segregated by bank group and criterion variable, the correlation-based shortlist of independent variables are as shown in tables 1 to 3 below and overleaf.
• Economic Development as the Key Driver of Global Private Banking and Wealth Management Industry The reverse reality of salient features of wealthy people in different parts of the world is the observation that the vast majority of the populace live in poor and deplorable conditions.
• Bank of America: The Staffing Process The effectiveness of staffs recruited in the bank depends on the ability of the bank to recruit the most suitable employees.
• The Royal Bank of Canada: Investment Analysis and Management As a result, the regional bank grew to a national bank and this success is not only attributed to the strategies of the institution itself but also the role played by the people of Canada […]
• Comparison Between Saudi Hollandi Bank Suk vs. Bank Bonds Besides, another factor is that through investments in such bonds, the investor gains certain amount of ownership in the assets of the company in the extent of his investments, which unfortunately is not possible in […]
• UBS Investment Company in the Swiss Banking Sector The relation of the Swiss banking industry with Swiss economy and the future aspect of investment in the industry are discussed.
• Saudi Banking Industry and Riyad Bank’s Performance In this context this paper analyzes the performance of the Saudi banking sector during the period from 2003 to 2007 in general and that of Riyad Bank, one of the major players in the Saudi […]
• Fransi Bank’s Financial Analysis and Forecast The financial analysis reveals the financial performance of the bank and the key factors that help the bank to be a leading organization in the industry.
• UK Banking Sector Recovery Plan The objective of the analysis is to identify the possible benefits, weaknesses and implications of the plan to the British economy.
• Three Financial Ratios for Stock Investor and Bank However in the stock investor will be looking for a long-term capital gain, the equity debt becomes more important since the stability of the company would be more important than the current liquidity.
• Changes in the UK and US Banking Industry In the 1980s the US banking industry experienced increased transformation to the regulation of the financial institution by the Federal bank.
• Al-Rajhi Bank of Saudi Arabia vs. Dubai Islamic Bank For the purpose of our assignment, we will use values of the total share capital of the year, the profit for the year, and the dividends paid to the shareholders of the banks.
• The Bank of England and the Financial Services Authority One of the most crucial changes that the agreement effected was the removal of the supervisory and regulatory role of banks from the Bank of England to the FSA.
• Trails to Success: Bank of America On analyzing the strategy of work of Bank of America and the requirements set for the applicants, it is possible to state that professional skills are the basis of a successful career in banking.
• Performance Evaluation of Al Rajhi Bank The financial statements and other information of the bank available at its website have been used to evaluate the performance of the bank.
• Ethical Implication of Banking Bailout As such, if the government uses a billion to rescue the banking sector, it has to obtain this money from somewhere else in the economy.
• Corporate Security Strategy: Financial Risks in Banking Sector However, the absence of effective risk management interventions is posing significant challenges to the success of financial institutions in the industry.
• Customer Service Improvement Project at Qatar National Bank Evaluation Hayes and Wheelwright’s 4-Stage model is a conceptual tool meant to evaluate the project with the extent of how its operational contributions improve the company’s competitiveness.
• Theft and Workplace Problems: The Accidental Bank Robbery
• Why Do Banking Policies Need To Keep Up With The Times?
• Chase Bank Company Analysis
• Creditpia’s Banking Sector
• Reforms Necessary in the Banking System
• Lloyds and Northern Rock Bank Buildings Semiotic Analysis
• Goldman Sachs Bank in Economic Turmoil
• HSBC – Criticised Over Their Banking Methods
• Background About Garati Bank in Turkey
• Home Loan Offered by Bank of America Corporation (BAC)
• Total Quality Management in Abu Dhabi Commercial Bank
• CRM Implementation Project for the Bank
• Abu Dhabi Commercial Bank: Corporate Governance Principles
• The World Bank: Definition and Activity
• Network Information and Activity Times in Banking Firm
• Case of Westpac Bank & St. George Bank Merger
• Andrew Jackson and the “Bank War”
• Diversity of Employees in the Boston Bank
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IvyPanda . 2024. "350 Banking Essay Topic Ideas & Examples." March 2, 2024. https://ivypanda.com/essays/topic/banking-essay-topics/.

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More From Forbes

Which banks are most vulnerable to the commercial real estate doom loop.

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NEW YORK, NY - NOVEMBER 23: Steve Carell attends "The Big Short" New York premiere at Ziegfeld ... [+] Theater on November 23, 2015 in New York City. (Photo by Andrew Toth/FilmMagic)

The other day, a reporter asked me the question posed in the title. And I looked at several bank 10-Ks and call reports accessible from the Federal Reserve’s website. I could not tell or even begin to guess an answer to this question. Why? Because publicly listed banks are not required to explicitly report fair values of their loans collateralized by commercial real estate. Neither are they explicitly required to report the fair value of the commercial real estate underlying these loans with sufficient granularity.

Valley National Bank Example

Consider an example to make this problem more concrete. Valley National Bank, based in New Jersey, is rumored to have a large exposure to commercial real estate. I pulled out their 10-K for the year ending Dec. 31, 2023, and found the following disclosures.

As you can see below from the loan portfolio disclosures that appear on page 67 of its 2023 10-K, $28 billion of its $50 billion loan portfolio (64%), is concentrated in commercial real estate. But these numbers reflect the historical cost of these loans, not their fair value. Meaning, we do not know how much of these loans are likely to be recoverable once the potential deterioration in the value of the collateral is considered.

Valley FInancial 2023 loan composition footnote from their 10K

Another disclosure on page 67 of its 2023 10-K states that its commercial real estate is well diversified across Florida, Alabama, New Jersey and Manhattan and the combined loan to value ratio is only 57%. That is, the value of the real estate could fall by 43% before loan values equal the real estate. This sounds reasonably safe, but the ratio represents a combined number across regions. The commercial real estate problem is arguably far worse in Manhattan than in Alabama.

Best High-Yield Savings Accounts Of 2024

Best 5% interest savings accounts of 2024.

Under the level 1/2/3 hierarchy disclosures reproduced below, Valley reflects the combined fair value of all loans. As you can see, the carrying amount of loans is $49.7 billion whereas the fair value of these loans is $47.9 billion. Is this $1.8 billion of unrealized losses the smoking gun we are looking for w.r.t commercial real estate? May be. It is hard to know for sure as real estate loans are explicitly broken out. Interesting though, is that the fair value of HTM (held to maturity) residential MBS (mortgage backed securities) are explicitly reported and, as you can see, embed $330 million of unrealized losses ($2.88 billion - $2.252 billion).

valley financial 10k 2023 fair value footnote

Somewhat disconcerting is that the sum of unrealized losses of roughly $2.2 billion ($1.8 billion in loans, $442 million in HTM securities offset by a saving in liabilities of 72 million) is almost a third of the bank’s book value of equity of $6.7 billion.

So, where does all this leave us? Perhaps there is no need to worry about Valley’s solvency. May be. We don’t know for sure.

Macro Evidence On The Problem

I then took the question to two of my brilliant Columbia Business School colleagues who have written clever papers trying to estimate the scale of the crisis: Stijn Van Nieuwerburgh and Tomasz Piskorski. They have calculated the scale of the brewing crisis at the macro level for the whole economy but were somewhat unsure of which specific banks might be affected.

Van Nieuwerburgh pointed me to his paper titled “ Work From Home and the Office Real Estate Apocalypse .” Van Nieuwerburgh and his co-authors try to infer the extent of value destruction in the office market by looking at lease-level data for 105 office markets throughout the United States over the period January 2000 to December 2022. They document a 17.38% decrease in lease revenue in real terms between December 2019 and December 2022. As of 2023.Q3, they find that 22.1% of office space was available for rent in New York and 30.4% in San Francisco. After a lot of clever modeling, they find a $664.1 billion decline in office values over the three-year period 2019-2022.

This begs the question of whose books are these losses sitting on. At an overall level, we know that commercial banks have about $2.4 trillion in commercial real estate loans on their balance sheets as of June 2022 according to Call Report data. Banks account for 61% of CRE (commercial real estate) debt holdings. The question I am interested in, of course, is which specific banks are sitting on these losses. Well, that is hard to know.

The 10-K of a bank lists the “amortized cost” of the loans given to the commercial real estate sector. If the system worked well, the allowance of loan losses provided against these loans should ideally reflect the losses that Van Nieuwerburgh and his co-authors document. But does the system work as intended? I am not sure and there is no easy way to find out.

Piskorski pointed me to his paper titled, “ Monetary Tightening, Commercial Real Estate Distress, and US Bank Fragility. ” In that paper, Piskorski and his co-authors, have access to a sample of 35,253 loans totaling $825 billion in aggregate principal balance from the CMBS iShares CMBS ETF (commercial mortgage backed securities) market. These loans, drawn from the outstanding CMBS loans as of December 2023, were obtained from the DBRS Morningstar database. Piskorski and co-authors estimate bank losses in the order of $100 to $200 billion given 10 to 20% default rate. Based on the CMBS data they analyzed: the following proportion of loans appear to be underwater: (i) 14% of all CRE loans; (ii) 44% of all office loans; and (iii) 12% of multifamily loans. They go on to estimate that more than 1/3 of all loans and majority of office loans would not be able to refinance in regular refinance market.

Then they access publicly available data on the amortized costs of loans on bank balance sheets. They make a bunch of assumptions about credit default and interest rate scenarios and estimate potential losses that banks will have to swallow. They conclude that the 2022 interest rate hike, commercial real-estate distress would add up to an additional $160 billion of losses to more than $2 trillion decline in the value of bank assets due to higher interest rates.

This is brilliant forensic work but its pretty hard for an investor to know whether these estimates are accurate given that they are necessarily based on coarse historical cost data of loans. In particular, how does the investor know whether CEOs have adequately provided for these credit losses in their financial statements? Or whether the auditors have forced them to do so and/or issued going concern opinions on these banks?

Opacity Hobbles Governance And Oversight

Lest you think that hedge funds can easily guess which banks are most affected and hence short the relevant bank stocks, the case of Arbor Realty Trust, a real estate financing company might prove instructive. Arbor is a publicly traded mortgage REIT that is potentially managing earnings. On paper, it should be easy to short the stock. But so far, the shorts have struggled because the fair value of Arbor’s multi-family loans portfolio are not disclosed, and such fair value can be difficult to estimate as the REIT changes contract terms on potentially delinquent loans.

To put numbers in perspective, I pulled up the 10-K of Arbor for the year ended Dec. 31, 2023. Arbor recorded a large increase in allowance for credit losses for its multifamily portfolio from around $19.2 million in 2022 to $72.8 million in 2023. On top of that, Arbor reports $272 million of multi family loans as newly impaired in 2023. To place these numbers in context, Arbor reports book equity of $3.2 billion and loans and investments of $12.377 billion, as of Dec. 31, 2023.

arbor realty 10k 2023 fair value footnote

In 2023, Arbor has restructured several loans in the multifamily category of around $520 million. It is not obvious what these restructuring initiatives made the reported balances for loans, allowance for losses and non-performing assets look better. Most likely they did.

The fair value disclosures, for all loans combined, do not seem to suggest a full blown crisis. If anything, the fair value of loans is higher than carrying amount, presumably because the impact of lower interest rates on fair value has offset any distress related impairments of loans. However, it would be nice to be able to see the fair value of each loan type separately (multi-family, land, retail etc.).

So, where does this leave us. On the surface, things don’t look as alarming for Arbor, if we take these somewhat aggregate and opaque disclosures at face value. Are the shorts wrong? And, how do we know for sure?

Policy Fixes

So, what to do? Here are suggestions for policymakers:

· The Fed likely has loan by loan data for loans given out by banks. Is there a case to make that data public or even allow limited release to investors and short sellers or so that they can assess which bank has the highest exposure to commercial real estate?

· Make the loan level data on mortgages more easily available, in general. All mortgages are recorded in the deed records and hence, in theory, already publicly available. One can purchase some data from companies like CoreLogic and Black Knight, who aggregate and clean them. The process is needlessly complicated and expensive which ends up thwarting research on CRE debt. Maybe the Fed should make this data easily and freely available for academic purposes.

· Can the FASB or the SEC ask banks to disclose fair value of loan assets for each loan category? Or declare the loan to value ratios of the commercial real estate underlying these loans, separately by region and by type of loan (commercial real estate, apartment loans etc.)? The regional breakdown is important. Presumably, the work-from-home movement has had a bigger impact on Manhattan office buildings than the ones in say Charlotte, North Carolina.

· Does the PCAOB want to investigate audits of banks likely to have the highest exposure to commercial estate to ensure that auditors have asked management to provide for these loan losses in a timely manner? And/or, why have going concern opinions not been issued by the auditors?

The PCAOB, in particular, needs to think hard about what the auditor can and cannot factor in when auditors consider going concern opinions. When my co-authors and I documented that auditors had not issued enough going concern opinions leading up to the 2008 financial crisis, we were told that auditors had factored in the possibility of a Fed sponsored bailout of the weak banks.

Some will no doubt argue that strategic ambiguity about the value of bank collateral is necessary to avoid a depositor led run on the affected banks and hence stop the fallout from any contagion that such a run may cause in the financial system. But that sounds like a strange argument to me. Why are we keeping investors of banks in the dark and bailing out CEOs who made aggressive bets that may have gone bad after interest rates rose?

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Overall bank rating

Pros and cons, how commercial bank and trust company works.

• Is Commercial Bank and Trust trustworthy?
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Commercial Bank and Trust Company vs. Simmons Bank

Commercial bank and trust company vs. southern bancorp, frequently asked questions, commercial bank and trust company review 2024.

Affiliate links for the products on this page are from partners that compensate us and terms apply to offers listed (see our advertiser disclosure with our list of partners for more details). However, our opinions are our own. See how we rate banking products to write unbiased product reviews.

The bottom line: Commercial Bank and Trust Company could be a good choice if you live in Monticello, Arkansas, and want to open a savings account or a short-term CD at a local bank. You might consider other financial institutions if you don't have a lot of money for an opening deposit.

Commercial Bank and Trust Company Savings Account

no monthly service fee

• Check mark icon A check mark. It indicates a confirmation of your intended interaction. No monthly service fee
• con icon Two crossed lines that form an 'X'. $200 minimum opening deposit
• con icon Two crossed lines that form an 'X'. Must keep at least $200 in account to earn interest
• con icon Two crossed lines that form an 'X'. Limit of three transactions per quarter
• 5 branches in Monticello, Arkansas
• To earn 0.15% APY you must maintain at least $200 in your account
• Limit of 3 transactions per quarter; $1 excess transaction fee if you exceed the limit
• Interest compounded and deposited quarterly
• FDIC insured

The Commercial Bank and Trust Company Savings Account could be ideal if you're looking to avoid monthly service fees. You'll need at least $200 to open a savings account at the brick-and-mortar bank, though, which is high compared to other banks . 

You'll also want to be mindful of transaction limits with the account. You'll be charged a $1 fee for each transaction that exceeds the limit of three transactions per quarter.

Commercial Bank and Trust Company 4-3-2 Account

up to $6 monthly service fee

• Check mark icon A check mark. It indicates a confirmation of your intended interaction. Unlimited check writing
• Check mark icon A check mark. It indicates a confirmation of your intended interaction. Possible to waive monthly service fee
• Check mark icon A check mark. It indicates a confirmation of your intended interaction. Free overdraft protection available
• Check mark icon A check mark. It indicates a confirmation of your intended interaction. No out-of-network ATM fees
• con icon Two crossed lines that form an 'X'. Monthly service varies between $6 and $0 (depends on your account balance)
• con icon Two crossed lines that form an 'X'. $30 overdraft fee
• con icon Two crossed lines that form an 'X'. Doesn't reimburse if you're charged by an out-of-network ATM provider
• Surcharge-free transactions at any Cirrus, Pulse, and Star ATMs
• Monthly service fee depends on your account balance: No fee if you have an account balance over $500; $2 monthly service fee if you have a daily account balance between $400 and $500; $4 monthly service fee if you have a daily account balance between $300 and $400; $5 monthly service fee if you have a daily account balance between $200 and $300; $6 monthly service fee if you have a daily account balance under $200
• Overdraft protection available: You may link your checking account to a savings account

The Commercial Bank and Trust Company 4-3-2 Account works best if you keep more than $500 in your account daily. Otherwise, you'll have to pay a monthly service fee that depends on how much money is in your account.

Commercial Bank and Trust Company CD

0.25% to 0.75%

• Check mark icon A check mark. It indicates a confirmation of your intended interaction. Solid interest rate compared to other brick-and-mortar banks
• Check mark icon A check mark. It indicates a confirmation of your intended interaction. Standard CD early withdrawal penalties
• con icon Two crossed lines that form an 'X'. Online banks may offer a higher interest rate
• con icon Two crossed lines that form an 'X'. $1,000 minimum opening deposit
• con icon Two crossed lines that form an 'X'. Limited CD term options
• con icon Two crossed lines that form an 'X'. Interest compounded quarterly, not daily
• Terms range from 6 months to 3 years
• CD early withdrawal penalties: 3 months of interest for terms under 1 year; 6 months of interest for terms over 1 year

Commercial Bank and Trust might be worth exploring if you'd like to open a short-term CD with a brick-and-mortar bank. CD terms range from six months to three years, and you'll earn a solid interest rate, regardless of which term you choose. 

Commercial Bank and Trust Company is a community development financial institution with five locations in Monticello, Arkansas. The brick-and-mortar institution is also part of Cirrus, Pulse, and STAR ATM networks, so customers have access to over 2 million ATMs throughout the US.

Customer support is available by phone from 8 a.m. to 4:30 p.m. CT Monday through Thursday and 8 a.m. to 5 p.m. CT on Friday. 

The bank's mobile app is rated 4.8 out of 5 stars in the Apple store and 4.5 out of 5 stars in the Google Play store. 

Commercial Bank and Trust Company is FDIC insured . Up to $250,000 is safe in an individual account, and $500,000 is secure in a joint bank account. 

Commercial Bank and Trust trustworthiness and BBB rating

Commercial Bank and Trust Company hasn't been involved in any recent public controversies. 

Usually, we also include ratings from the Better Business Bureau, but Commercial Bank and Trust Company hasn't been rated by the BBB yet. 

BBB ratings aren't necessarily the be-all and end-all. You might want to read online customer reviews or chat with current customers to see if the bank is right for you. 

The role of community development financial institutions

Community development financial institutions, or  CDFIs , serve low-income and disadvantaged communities. Banks and  credit unions  have to undergo certification by the  US Department of Treasury's Community Development Financial Institutions Fund and meet specific requirements to address the banking needs of local communities.

Commercial Bank and Trust Company hosts luncheons and community events for local schools and hospitals, like the Drew Memorial Health System, Drew Central Schools, and Monticello Schools. Representatives also participate in local fundraisers for nonprofit organizations and programs like the Special Olympics.

We compared Commercial Bank and Trust Company to another bank with branches in Arkansas: Simmons Bank .

Commercial Bank and Trust Company might be a good option if you plan to open a savings account and have a minimum of $200. The Commercial Bank and Trust Company Savings Account charges zero monthly service fees. Meanwhile, Simmons Bank charges a $5 monthly service fee on its lowest-tier savings account if you don't keep at least $100 in your account. 

If your priority is opening a checking account, you may favor Simmons Bank. The Simmons Bank Coin Checking Account has zero monthly service fees and has a $0 minimum opening deposit. In comparison, Commercial Bank and Trust Company charges a monthly service fee if you don't keep at least $500 in your account and requires a $200 minimum opening deposit.

Southern Bancorp also has branches in Arkansas. See how the two banks compare below.

You'll probably prefer Commercial Bank and Trust Company if you're looking to open a savings account and have at least $200 for an initial deposit.

Commercial Bank and Trust Company doesn't charge service fees on its savings account, while Southern Bancorp has a quarterly service fee if you don't keep at least $50 in your account daily. You'll also earn a high interest rate with the Commercial Bank and Trust Company savings account than with the Southern Bancorp savings account.

If you'd like to earn more interest on your money, online banks will likely be a better option for opening a savings account that a brick-and-mortar bank. For CDs, though, you might lean more toward Southern Bancorp. Southern Bancorp has solid CDs with higher interest rates than Commercial Bank and Trust Company, regardless of which term you choose.

Yes, Commercial Bank and Trust Company is FDIC insured. When a bank is federally insured, up to $250,000 is secure in an individual bank account, and $500,000 is safe in a joint bank account.

Commercial Bank and Trust Company serves communities in Monticello, Arkansas.

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Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.

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