Commercial Bank by Julia Kagan

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

Questions answered:

  • What is a commercial bank?

Summary:

  • 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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