differentiate modern banks and commercial banks
Answers
A central bank is a banker's bank. It is normally part of or connected to the government of a country and manages the country's financial system. A commercial bank provides banking services to businesses, institutions and some individuals. The money it takes in from its customers is deposited at its local central bank. Nearly all the country's banks have accounts at the central bank to keep their money and for borrowing to offset any temporary shortages of cash.
Where Deposits Come From
Both commercial banks and central banks take in deposits of money. A difference between a central bank and a commercial bank is that commercial banks receive their deposits, in the form of checking, savings and certificates of deposit, from their corporate or individual customers and deposit some of that money at their country's central bank. Central banks receive their deposit from other banks.
Commercial banks serve individuals and businesses, while central banks serve the country's banking system. They provide money transfers back and forth between banks and governmental institutions both domestically and in cases of transactions with foreign entities.
Commercial banks normally have branches in different parts of their region. Central banks maintain regional branch banks throughout the country.
Lending Out Money
One of the core functions of both a central bank and a commercial bank is lending money. The difference is in what people and organizations the two types of banks will lend to.
Commercial banks lend out the money they take in deposits. They make personal loans, auto loans, business loans and mortgages. Occasionally, they will take in less money than they need to cover the loans they make, so their books will show a negative balance. To cover the cash shortfall, commercial banks borrow from their central banks.
Central banks generally lend only to other banks. The Federal Reserve identifies itself as a lender of last resort, to be turned to when banks are having trouble raising money from other sources. It generally charges a higher interest rate than other sources of bank lending and demands collateral, such as securities, from borrowing banks.
Services Provided By the Banks
Central banks manage the monetary policy of their respective countries through their operations, which set interest rates and regulate commercial banking activities. Commercial banks set their prime lending rates off a spread tied to the rates set by their central banks. Commercial banks use the central bank's money transfer wire system to move money throughout their branch system and between the bank and customers.
The central bank monitors money movement in and out of commercial banks, always watching to maintain the financial strength of the commercial banks and step in to protect depositors' money if a commercial bank becomes insolvent.
Central Banks Around the World
Most countries around the world have a central bank and many purposely give the bank a degree of autonomy from the rest of the government. This is designed to prevent politicians from using the central banks to manipulate the economy before elections.
Different countries name their central banks in different ways. The U.S. central bank is the Federal Reserve, the United Kingdom's central bank is the Bank of England, and the central bank serving countries that use the euro as their currency is the European Central Bank.
You can't always tell from the name of an institution whether it's a central bank or a commercial bank. The meaning of Central Bank of Nigeria is exactly what it sounds like, meaning that country's central bank, but there are also institutions in the United States called Central Bank that are actually commercial banks.
Hello dear
Central Bank reserve day deposit from other banks . Commerical banks serve individuals and businesses , While central bank serve the country's Banking system . They provide money transfers back and forth between banks government institutions both domestically and in cases of transactions with foreign intities .
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