Commercial Banking
How banks make money, manage risk, and serve as the backbone of the modern economy
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0 / 5 completedThe Engine of Finance
Commercial banks are the institutions most people interact with daily—checking accounts, savings, mortgages, credit cards. But what exactly is their business? At its core, commercial banking is about borrowing short and lending long: taking deposits (short-term liabilities) and making loans (long-term assets), profiting from the spread.
This simple model powers a multi-trillion dollar industry. JPMorgan Chase, Bank of America, Wells Fargo—these giants operate on the same fundamental principles as your local community bank. Understanding commercial banking reveals how the financial system allocates capital and why banks wield such influence over the economy.
What Commercial Banks Do
Provide safe storage for customer money. Pay interest on savings accounts. Offer checking accounts for transactions.
Lend to consumers (mortgages, auto loans, credit cards) and businesses (commercial real estate, working capital, equipment).
Process transactions, issue debit/credit cards, enable wire transfers, facilitate electronic payments.
Offer investment products, retirement accounts, financial planning, and private banking for high-net-worth clients.
Banks are fundamentally maturity transformation machines. They borrow short-term money (deposits you can withdraw anytime) and lend it long-term (30-year mortgages). This mismatch creates both profit opportunity and inherent risk.