Commercial banks are banking institutions that are geared more toward the lending of money to customers, rather than focusing on generating or raising money. A commercial bank accepts deposits to personal and corporate accounts, and then uses the combined strength of the deposits to finance loans for individuals and businesses. This is in contrast to an investment bank, which focuses on generated revenue through investments.
The commercial bank will extend a number of different types of loans to customers. For individuals, a commercial bank may loan funds for the purchase of personal property, such as vehicles or homes. A commercial bank may also extend a personal loan to an individual for home improvements or to consolidate a number of personal debt instruments. Loans of this type are usually extended with interest included, allowing the bank to cover the costs associated with extending the loan.
Business clients may also obtain loans from a commercial bank. The type of business loans that would be offered by a commercial institution would include funds to finance a payroll or to purchase operating supplies. However, if the funds were needed to effect a corporate realignment or restructuring, investment banks would more likely finance that type of business loan.
A commercial bank will also offer a wide range of savings programs for customers. Along with standard savings accounts, the commercial bank may also offer interest bearing checking accounts, certificates of deposit, and other savings strategies that are considered to provide a small but consistent return in exchange for doing business with the bank.
The distinction between the functions of a commercial bank and those of an investment bank are not always clear. While the banking industry within the United States tends to operate with a clear division between the two types of banks, this is not always the case across the globe. Often, large international banking institutions will provide both commercial and investment banking services to their clients.