Commercial banks

Definition

Commercial banks are financial institutions that accept deposits from individuals and businesses, and provide loans and other financial services. They play a crucial role in the economy by facilitating money circulation.

Analogy

Commercial banks are like the heart of the economy, pumping money through the system. Just as the heart pumps blood to nourish the body's organs, commercial banks circulate money to feed economic activity.

Related terms

Fractional Reserve Banking: This term refers to the practice where commercial banks keep only a fraction of their deposits as reserves and lend out the rest.

Bank Reserves: These are funds held by commercial banks either as cash or on deposit with central banks to meet withdrawal demands and maintain stability.

Money Multiplier: The money multiplier is a measure of how much new money can be created by commercial banks through lending based on their reserve ratios.