TL;DR - Commercial banks allow consumers and small businesses to make deposits and take out loans.
Helpfulness - 3
Tags - commercial bank, reserve ratio, cash, deposit, loan, credit, mortgage
- What is a commercial bank?
- Commercial banks make money by offering loans and earning interest in those loans.
- A financial institution that offers checking account services, makes various loans, and offers basic financial products to individuals and small businesses.
- Net interest income is the spread between the interest banks pay on deposits and the interest banks earn on loans they issue.
- Traditionally pay low interest rates; insured by FDIC.
- Banks are required to keep liquid cash to satisfy reserve ratio.
- Banks create credit by allowing multiple claims to assets on deposit (money multiplier effect).
- The largest source of funds for banks is deposits.
- Generally, loans are the primary use of bank funds; typically made for fixed terms, at fixed rates and are typically secured with real property.
- Banks evaluate the credit worthiness of potential borrowers and use that information to charge differing rates of interest.
- Residential mortgages make up the largest share of consumer lending.
- Online commercial banks often pay a higher interest rate to their depositors because they usually have lower service and account fees
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