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Types of commercial banks and their functions

Commercial banks, savings banks, Credit unions, mortgage banks, Functions include money transfer, deposits, credit lines, vault services, trust services and brokerage.

Banks are the main players in the Worlds financial industry and they include Commercial banks, savings banks, international banks, Credit unions, mortgage banks and trust companies.

Commercial banks are classified into three categories. This include Unit bank, Branch of a main bank and Group of banks.

Unit banking is when the bank has a single office from which to provide services to customers. This type of banking worked well in small homogenous communities such as small businesses in a small town and farmers.

However when society becomes more diverse and large areas become economically interdependent, unit banking was not able to serve well and banks begun to have many offices from which to serve different customers in different geographical locations. This has led to the development of Branch Banking. This is when a single bank conducts its business in multiple sites.

The main function of commercial banks is to enable the transfer of money through things like checks, credit cards, debit cards and electronic transfer.

The other function of banks is to handle money deposits from customers who have disposable income that they wish to save. The banks keep some of the deposited money into a reserve fund to have available money for withdrawal on demand and use the rest to generate money by giving credit and loans to be repaid at an interest.

Availability of money to be lent to consumers is important for the economy because it enables people to finance agricultural, commercial and industrial projects. This helps stimulate growth and improve the economy by financing all these projects that generate money.

Commercial banks give credit to businesses by offering lines of credit, defined as written guarantee that the banks will loan the customer a specified amount of money. This is especially useful in international trade where a seller may not want to release his products to the buyer abroad and trust that he will send money back. So the bank issues credit to the seller so that he knows that he will be paid by the bank on releasing his goods to the buyer.

Commercial banks also provide Trust services for people who have accumulated some money and property and want it distributed in a certain way to their heirs. Bank Trust departments can act as executors of such trusts and they take care of the funds in the estate, and then distribute the proceeds to the heirs as agreed.

Banks also offer Vault services that store valuables like jewelry and keep them in safe deposit boxes where they can only be accessed by authorized people.

Commercial company trust departments also offer other services to companies. These include administering pensions and retirement plans for the company employees.

Banks also provide brokerage services, the buying and selling of securities for their customers. However different countries have different laws and some prohibit banks from offering brokerage services.