Commercial banks and central bank are important parts of the country’s overall economy. While commercial banks offer products and services to businesses and individuals, the country’s central bank will offer products and services to the government and other commercial banks. There are a number of differences between commercial banks and central bank in terms of the services and products offered, the customers they cater to, their responsibilities, etc. The article that follows offers a clear explanation on each type of bank and explains the similarities and differences between commercial banks and central bank.
Commercial Bank
Commercial banks are the banks that serve customers directly. Commercial banks offer a wide range of banking products and services to individuals and businesses, and the services offered are generally well catered to the specific customer segments with which commercial banks deal. Commercial banks offer a range of deposit products to individuals and businesses such as checking accounts, savings accounts, certificates of deposit, etc. One of the major functions of commercial banks is lending. Lending products include commercial loans, trade finance, mortgage and housing loans, vehicle loans, personal loans, etc. Commercial banks also offer a number of services to their customers such as safe deposit facilities, letters of credit, provision of foreign exchange, etc.
Central Bank
Central banks do not deal with customers directly. Instead, the central bank is known as the banker’s bank and controls the entire banking industry. The country’s central bank maintains deposits for the government. Government deposits funds for the purpose of providing medical insurance, social welfare, unemployment benefits, etc. Central banks offer short term loans to the country’s commercial banks. These loans are provided for banks for their overnight funding purposes and are provided at lower interest rates than the federal funds rate. Central banks offer a number of services to the federal government and other commercial banks such as clearing of funds between member banks, issuing of government bonds, payment of various social security and Medicare programs, etc.
Central banks also play an important role in regulating the country’s monitory policy. The central bank increases or decreases interest rates, increases or decreases reserve requirements, etc. The central bank formulates banking rules and regulations and is also responsible to oversee that banking regulations put in place are being followed by conducting regulatory tests.
What is the difference between Central Bank and Commercial Bank?
Commercial banks offer banking products and services to individuals and businesses. Central banks offer products and services to the country’s government and other commercial banks. While there are a number of commercial banks in a country with many branches, there is only one central bank that oversees the entire banking operation. Central banks have the power to print money and control the country’s monitory policy. Commercial banks and the government hold accounts at the central bank as the central bank is the banker’s bank and the government’ s banks. The central bank regulates the entire banking system and balances funds between commercial banks. While commercial banks offer lending services to individuals and businesses, central banks offer loans to the commercial banks.
Summary:
Central Bank vs Commercial Bank
• Commercial banks and central bank are important parts of the country’s overall economy.
• Commercial banks are the banks that serve customers directly. Commercial banks offer a wide range of banking products and services to individuals and businesses.
• Central banks do not deal with customers directly. Instead, the central bank is known as the banker’s bank and controls the entire banking industry.
• Central banks have the power to print money and control the country’s monitory policy.
• While there are a number of commercial banks in a country with many branches, there is only one central bank, which offers products and services to the country’s government and other commercial banks.