Kembara’s Financial Solutions - Retail and Commercial Bankings
Because we see retail banks on the main street, the majority of us are aware of what they do. Retail clients and retail banks are terms used to describe people and the financial institutions that serve them. A retail bank operates under a similar business model to the one that was described in the previous chapter: it seeks to raise deposits from individuals and uses those deposits to lend money to other individuals. Because it pays less interest on deposits than it does on loans, the bank should create a surplus. The bank can then utilize this surplus to cover its other costs, such as paying the staff's salaries and the property's renting. After covering all of these other costs, the bank will have made money if there is still a surplus. In the financial services industry, particularly in the US, the term "commercial bank" is frequently used. It is applied in one of two circumstances. In the US, it is a word that refers to all banks that engage in what have been described as a bank's primary functions up to this point: bringing in deposits and disbursing loans. The phrase "commercial banking" is frequently used in other regions of the world to distinguish banks that focus on offering banking services (deposits and loans) to commercial entities, or businesses, rather than to individuals. Since the majority of the business clients are corporate entities, or firms, the latter term is also referred to as corporate banking. Since the majority of banks perform both services, it can be a little deceptive to categorize them as either retail or commercial. Just consider companies like Bank of America in the US, Lloyds and Barclays in the UK, and HSBC worldwide, which serve both corporate and retail clientele.
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