What is Commercial Banking? Defenition and Functions

What is commercial banking or commercial bank being a type of bank that provides services. Various services are referred to in this case such as accepting deposits. Or it could be serviced to provide business loans as well as various basic investment products.

Commercial banks also refer to bank institutions or bank divisions that handle deposits and also handle loans from large companies or business entities. This does not refer to the activities of retail banking. You could also say that this commercial bank is a type of privately-owned financial institution.

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So do not be surprised if bank financial institutions like this will tend to be oriented to find profit. In addition, this type of bank will also carry out various activities and other general transactions. So this type of bank can provide all existing banking services.

Commercial Banking Duties

What is Commercial Banking? Defenition and Functions

In the operational process, commercial banks have several main tasks as listed in the following.

• One of them is to create money which is a means of payment through the mechanism of transfer or often referred to as clearing. This is certainly related to the duties of banks related to monetary policy.
• Commercial banks must always support the smooth payment mechanism so that this bank can offer various services related to payment mechanisms.
• This bank also conducts the process of collecting community deposit funds either consisting of current accounts or term deposits. Perhaps the most common savings made by the community are in the form of savings deposits.
• Commercial banks also support the smooth running of international transactions both goods and services and capital transactions. In addition, this bank also serves the process of storing valuables. What is meant by valuables in this case could be in the form of decoration and even diplomas.
• The bank also serves the purchase and sale of securities instruments such as money orders or debt recognition letters and trade papers and other types of securities. In addition, commercial banking also moves money with its interests or customers.
• Not only that but commercial banks also provide financing and or carry out other activities of course following all the provisions that have been set by central bank.

The entire duties of a commercial bank are essentially the general duties of a bank’s financial institution. Therefore, commercial banks also called commercial banks will provide existing banking services and be available to the entire community. So you can do financial management in this commercial bank institution.

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Commercial Banking Function

If traced further, then the function of a commercial bank is divided into three. Its functions include Agent of Trust, Agent of Equity, and Agent of Development.

• As an Agent of Trust, commercial banks function as trust-based institutions. So the main basis of banking activities is trust or trust both in terms of collecting funds and in terms of channeling funds. In carrying out this function, commercial banks must have trust that moves in two directions in it, namely trust from and to the community.
• While as an Agent of Equity means the function of the bank related to the provision of capital loan services to all Indonesian people which is certainly accompanied by the existence of previously approved investment interest.
• The final function as an Agent of Development tends to require commercial banks or commercial banks to have an obligation to participate in the development of the State of Indonesia. Therefore, the vision and mission of the bank must be clear in terms of Indonesia’s development so that the bank should have many facilities to support development in Indonesia.

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Role of Commercial Banking

Looking at all the duties and functions of this commercial bank, it is certain that the role of this bank is considered very important. The role of this commercial bank consists of several types, namely transactions, liquidity, asset transfer, and efficiency.

• In this case, commercial banks that act as transaction actors tend to be able to carry out various kinds of transactions related to various bank products. Some products from banks function as a means of payment such as savings and current accounts and deposits and stocks.
• While the role of the bank as liquidity is related to placing the funds it has for example in the form of savings and deposits and current accounts and many others. With this role, each fund owner will be able to place funds adjusted to their needs and interests.
• The next role relates to liquidity activities. For the role of commercial banks in terms of assets, the transfer tends to make banks carry out the process of transferring funds from surplus units to deviations.
• Lastly, the role of the bank is efficiency related to bank activities related to the process of bringing together various parties who are mutually interested and in need. In this role, the bank can also be called by the term broker.

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What is commercial banking as described above is certainly a financial institution that has banking activities such as banks in general. Therefore, this commercial bank is also referred to as a commercial bank with all its banking activities that are indeed serving the community.