Commercial bank

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Commercial banks and financial institutions differ from investment banks in earning most of their income from lending from their pool of deposits rather than by charging investment-service fees on brokerage and underwriting.[1] Because a commercial bank is required to hold only a fraction of its deposits as reserves, it can use some of the money on deposit to extend loans. When a borrower receives a loan, his checking account is credited with the amount of the loan; total demand deposits are thus increased until the loan is repaid. As a group, then, commercial banks are able to expand or contract the money supply by creating new demand deposits.[2]

Most commercial-bank loans are short-term to their mostly business customers, to whom they offer additional business-based banking services.

Some commercial banks may be members of the Federal Reserve System. [3]

In 2011, Fortune Magazine ranked Bank of America Corp. as the top U.S. bank by revenue, followed by JPMorgan Chase & Co., Citigroup, Wells Fargo, Goldman Sachs, Morgan Stanley and American Express.[4]


References

  1. Commercial Bank. Investorglossary.com.
  2. commercial bank. Britannica Online.
  3. Commercial bank definition. Investorwords.com.
  4. Fortune 500 2011:Industry:Commercial banks. Fortune.