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Commercial banking is different from investment banking, which primarily raises money for businesses, facilitates mergers or acquisitions, and works for institutional investors. A commercial bank must have a charter to operate, which will be issued by the federal government or by the state in which it plans to do business.
Commercial paper is issued by a wide variety of domestic and foreign firms, including financial companies, banks, and industrial firms. Major investors in commercial paper include money market mutual funds and commercial bank trust departments. These large institutional investors often prefer the cost savings inherent in using commercial paper ...
The term 'retail' refers to the almost storefront-shopping nature of commercial banking services. Most commercial banks have extensive retail banking services and products to reach a wide consumer base. Here's a brief story about Bob's day at his bank XYZ. He arrives at the bank one day to deposit a $2000 paycheck into his account.
An investment bank is a financial intermediary that specializes primarily in selling securities and underwriting the issuance of new equity shares to raise capital funds. This is different from a commercial bank, which specializes in deposits and commercial loans.
A certificate of deposit (CD) is a relatively low-risk debt instrument purchased directly through a commercial bank or savings and loan institution. How Does a Certificate of Deposit (CD) Work? The certificate of deposit indicates that the investor has deposited a sum of money for specified period of time and at a specified rate of interest.
Like a commercial bank lending to a consumer, the Fed’s discount window charges different discount rates based on the credit quality of the borrowing bank and offers three types or tiers of loans. The first tier is the Primary Credit program. This is the best rate and is offered to the most financially sound institutions.
A mutual savings bank (MSB) is a type of financial institution that functions much like a bank, but with a different ownership structure. Instead of shareholders owning marketable shares, a mutual savings bank is owned by its depositors, much like a credit union. Unlike a credit union, however, the mutual savings bank operates to create profit ...
With this method, the central bank either buys or sells Treasury bonds. Buying Treasuries puts money into circulation and selling Treasuries removes it -- thereby increasing or decreasing the supply of money in an economy. The last tool is the use of capital requirements. Commercial banks take in deposits and then loan it out at higher interest ...
The shadow banking system (or shadow financial system) is a network of financial institutions comprised of non-depository banks -- e.g., investment banks, structured investment vehicles (SIVs), conduits, hedge funds, non-bank financial institutions and money market funds.
For example, let’s assume that Bank XYZ has $400 million in deposits. If the Federal Reserve’s reserve ratio requirement is 10%, Bank XYZ must keep at least $40 million in an account at a Federal Reserve bank and may not use that cash for lending or any other purpose. This ensures that Bank XYZ always has some money on hand to prevent a run.