COMPARING BANKS

Commercial Bank and Central Bank



Commercial Bank and Central Bank

A commercial bank is a type of financial intermediary and a type of bank. Commercial banks are also known as merchant banks. In the early twentieth century, the Glass-Steagall Act had created a legal distinction between public commercial banks and investment banks, public, activities that could not be done by the same entity for conflict of interest exists between the two (Bindseil, Weller & Wuertz, 2003). This separation was decided after a committee of inquiry, sponsored by the U.S. Senate as a result of numerous failures due to the crisis of '29, he verified that some banks had placed at the customer securities issued by companies assigned to them and that these had subsequently used the funds thus collected to repay the loans previously granted by the bank (Wing Thye & Wei, 2011). In essence, the banks would transform suffering into potential issues placed by its customers. In other cases, lenders issue loans with so-called option conversion, which allows the debtor, under certain economic conditions, not to repay the loan to the bank and sell as many shares owned (Ivanenko, 2003).

A bank with special powers is the central bank of a state. Its tasks include the regulation of banking, financial supervision of private banks and their work, the issue in a state of monopoly of money or anything that has to do with the so-called monetary policy (Leao & Leao, 2007). The work of the Central Bank is not, in principle, very different from that of any other bank. The main difference is the ability to issue (and withdraw) money, to adjust the amount in circulation in the economy, while, as we have seen banks, commercial banks can expand lending to the extent that deposits grow (Billings & Capie, 2011). ...