Commercial Banks

The definition of commercial banks is financial intermediaries or banks that are specifically not investment banks. Commercial banking is what you do at your local bank branch. It’s what most people normally call a bank. We just add on the term commercial to distinguish this from an investment bank. It seems strange today, but there is a historical reason for the distinction.

After the United States stock market crash of 1929 during the Great Depression, the United States Congress passed the Glass-Steagal Act of 1930. This new law designated the role of commercial banks as that of engaging only in banking activities such as taking deposits and making loans. Investment banks could only handle capital market exchanges, or stock transactions. Today, that separation of activities is no longer required, but the term commercial bank is still in use.

Some people use the term commercial bank to refer to a bank that caters to larger businesses instead of individuals and small business. These people would refer to a regular bank for individuals as a retail bank to distinguish it from a commercial bank.

Commercial banks get funds by collecting deposits from individuals and businesses through checking and savings accounts, as well as longer term savings vehicles called term deposits. They also make loans, purchase government and corporate bonds. Commercial mortgage banking is a key component of the United States economy. The assets of a commercial bank are its loans and bonds. Its liabilities are the deposits, which it is really just holding in safe keeping for the depositors.

Commercial banks are all over the world, from Chino Commercial Bank in California to Siam Commercial Bank in the Far East. Wherever you find business you’ll find a national commercial bank. Customers of Commercial Capital Bank, a member of the Washington Mutual family, can even open a new account online.

Some commercial banks are locally owned and operated like Coast Commercial Bank. Others, such as United Commercial Bank operate as a regional banking system with offices, or branches, in several states. Another example of a larger regional bank is Commercial Federal Bank, which is headquartered in Omaha, Nebraska and serves a large part of the Midwest. It is the 12th largest thrift institution in the country.

Recent commercial banking trends include the importance for large banks to create a personal relationship with customers so that individuals feel valued. First Commercial Bank, based in Birmingham, Alabama, has the slogan ‘Totally Focused On You’. This is a common message large banks aspire to convey. Another trend is to offer all services online.