Banks are an important part of the economy of a nation. They are the most critical institutions that help regulate the overall economic development of a nation.
Banks help mobilise the money in an economy and act as a connecting link between the government and the general population. Banks act as facilitators of credit in the economy, which is an important component that drives the growth of an economy.
There are two types of banks based on the authority, these are central banks and commercial banks. Central bank can be called the apex bank, which is responsible for formulating the monetary policy of an economy.
Commercial banks, on the other hand, are those banks that help in the flow of money in an economy by providing deposit and credit facilities. Commercial banks provide financial services to the individuals and businesses.
Let us look at some of the points of difference between the central bank and commercial banks.
Central Bank | Commercial Bank |
Definition |
Central bank is the apex financial institution of the country that is concerned with formation of monetary policies and the way money should be regulated in the economy | It is a type of financial institution that is concerned with providing banking services to the general public and businesses by facilitating deposit, offering loan facilities |
Ownership |
Central bank is always having public ownership | Commercial banks can be either public or private in their ownership |
Number of Banks |
There is only one central bank in a country | There can be many commercial banks in a country |
Profit Motive |
Central bank does not operate for making profit | Commercial banks operate with the motive of earning profit |
Clients |
Commercial banks and the government | Individuals and businesses |
Policy creator |
Central banks create monetary policy to regulate interest rates in an economy | Commercial banks do not create any policies that are essential for the functioning of an economy |
Source of Money Supply |
Central banks are the source of money supply in an economy | Commercial banks run on the deposits obtained from the individuals and hence they perform no such function |
This article was all about the topic of difference between Central Bank and Commercial Bank, which is an important topic for Commerce students. For more such interesting articles, stay tuned to BYJU’S.
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FAQs
Central bank can be called the apex bank, which is responsible for formulating the monetary policy of an economy. Commercial banks, on the other hand, are those banks that help in the flow of money in an economy by providing deposit and credit facilities.
What is the main difference between central bank and commercial bank? ›
Central banks offer products and services to the country's government and other commercial banks. Commercial banks offer banking products and services to individuals and businesses. There is only one central bank that oversees the entire banking operation.
What is the main difference between commercial bank and other bank? ›
The key difference between retail and commercial banking is who the products are designed for. While retail banks service individuals, communities, small businesses, and families, commercial banks focus on larger companies, government entities, and institutions.
What is a commercial bank example? ›
For example, Bank of Baroda, State Bank of India (SBI), Dena Bank, Corporation Bank, and Punjab National Bank. Foreign bank –: These banks are established in foreign countries and have branches in other countries.
What does the central bank do with the commercial bank? ›
Bank Supervision The Central Bank provides legal and regulatory framework and issues prudential guidelines to govern the operations of financial institutions under its mandate. It also licenses and undertakes surveillance of the financial institutions to ensure compliance with laws and regulations.
What are the 5 functions of a commercial bank? ›
Commercial banks perform various functions that are as follows:
- Accepting deposits. The basic function of commercial banks is to accept deposits of the customers. ...
- Granting loans and advances. ...
- Agency functions. ...
- Discounting bills of exchange. ...
- Credit creation. ...
- Other functions.
The U.S. Federal Reserve is one of the most powerful central banks in the world. The European Central Bank oversees the policies of the eurozone. Other notable central banks include the Bank of England, the Bank of Japan, the Swiss National Bank, the Bank of Canada, and the Reserve Banks of Australia and New Zealand.
Is JP Morgan a commercial bank? ›
We are a leader in investment banking, financial services for consumers and small business, commercial banking, financial transactions processing and asset management.
Is Wells Fargo a commercial bank? ›
Who we are. Wells Fargo Commercial Banking provides market-leading solutions, industry expertise, and insights to help enable our clients' growth and success, enhancing the communities we serve.
What are the two 2 primary differences between a commercial bank and a credit union? ›
The main difference between the two is that banks are typically for-profit institutions while credit unions are not-for-profit and distribute their profits among their members. Credit unions also tend to serve a specific region or community.
We are the largest U.S. commercial and industrial lender. And we have one of the top market-making and investment banking platforms.
What makes a bank commercial? ›
Definition. Commercial banking is a type of banking that provides services for businesses, government agencies, and institutions like colleges and universities to help them grow and profit. Commercial banks make money mainly by loaning money to businesses and earning back interest and fees from these loans.
How many US commercial banks are there? ›
At the end of 2023, there were 4,470 FDIC-insured commercial banks in the country, up from 4,136 a year earlier.
How is central bank different from commercial bank? ›
The central bank and Commercial bank are the important financial institutions of a country. The central bank is an institution that is responsible for the monetary policies of the country while the commercial bank provides banking and other financial services to the general public.
What is central bank in simple words? ›
A central bank is a public institution that is responsible for implementing monetary policy, managing the currency of a country, or group of countries, and controlling the money supply.
Who funds the central bank? ›
Its operations are financed primarily from the interest earned on the securities it owns—securities acquired in the course of the Federal Reserve's open market operations.
How is a central bank different from a typical commercial bank Quizlet? ›
How is a central bank different from a typical commercial bank? A central bank doesn't make loans or take deposits from individuals, but instead regulates the money supply of the entire economy.
What is the biggest difference between a commercial bank and credit union? ›
What makes banks and credit unions different from each other is their profit status. Banks are for-profit, meaning they are either privately owned or publicly traded, while credit unions are nonprofit institutions.
What is the difference between a money center bank and a commercial bank? ›
A money center bank is similar in structure to a standard bank; however, it's borrowing, and lending activities are with governments, large corporations, and regular banks. These types of financial institutions (or designated branches of these institutions) generally do not borrow from or lend to consumers.
Why is central bank different from other banks? ›
The critical feature of a central bank—distinguishing it from other banks—is its legal monopoly status, which gives it the privilege to issue banknotes and cash. Private commercial banks are only permitted to issue demand liabilities, such as checking deposits.
