Commercial Banks: Investopedia)

What is a Financial Insttuton
A financial insttuton is a company engaged in the business of dealing with financial and
monetary transactons, such as deposits, loans, investments and currency exchange. Financial
insttutons encompass a broad range of business operatons within the financial services sector,
including banks, trust companies, insurance companies, brokerage firms and investment dealers.
Virtually everyone living in a developed economy has an ongoing or at least periodic need for the
services of financial insttutons. (Investopedia)
The economic system could not functon without financial insttutons. These insttutons—
including commercial banks, savings and loan associatons, and credit unions are financial go-betweens.
They keep money flowing throughout the economy among consumers, businesses, and
government.When people deposit money in a bank, that money does not sit in a vault. The bank lends
the money to other consumers and businesses. The dollars may be loaned to consumers to help finance
new cars, homes, college tuiton, and other needs. Businesses may borrow the money for new
equipment and expansion. State and local governments may borrow to build new highways, schools, and
hospitals. The interacton that financial insttutons create between consumers, businesses, and
governments keeps the economy alive.(Sally r. Campbell and Robert l. Dansby, 2017)
Here is an overview of some of the major categories of financial insttutons and their roles in the
financial system.
Commercial Banks
Historically, commercial bank came into being for its commercial purpose. The incepton of
modern banking is the outcome of commercial bank. In the words of Professor Roger, the bank which
deals with money and moneys worth with a view to earning is known as Commercial bank.
The main objectve of commercial banks is to earn profit in exchange of their services like to acceptng
deposits and providing security and convenience to their customers. Part of the original purpose of
banks was to offer customers safe keeping for their money. By keeping physical cash at home or in a
wallet, there are risks of loss due to theft and accidents, not to menton the loss of possible income from
interest. With banks, consumers no longer need to keep large amounts of currency on hand; transactons
can be handled with checks, debit cards or credit cards, instead. Commercial banks also make loans that
individuals and businesses use to buy goods or expand business operatons, which in turn lead to more
deposited funds that make their way to banks. If banks can lend money at a higher interest rate than
they have to pay for funds and operatng costs, they make money. ( Investopedia)
Actually there are other forms of banking but why do some people prefer commercial banking.
According to the study of Chanel Adams in 2017, commercial banks are common for both personal bank
accounts and business bank accounts. Some people choose them when it comes to applying for applying
for loan or managing their money. They provide a variety of services including checking and saving
accounts, payment and transactons processing, business lines of credit and loan or mortgage optons.
They have more advantages than other types of banking such as credit unions. Some of these
advantages are locaton, discounts, product offerings, online banking and electronic banking.
Investment Banks
While investment banks may be called "banks," their operatons are far different than deposit-gathering
commercial banks. An investment bank is a financial intermediary that performs a variety of services for
businesses and some governments. These services include underwritng debt and equity offerings, actng
as an intermediary between an issuer of securites and the investng public, making markets, facilitatng
mergers and other corporate reorganizatons, and actng as a broker for insttutonal clients. They may
also provide research and financial advisory services to companies. As a general rule, investment banks
focus on inital public offerings and large public and private share offerings. (Investopedia)
The banking sector is split into two fundamental divisions: investment banking and commercial banking.
But in 2008 debate rages as to whether they should be carried out under a single roof, or whether they
should be forever separate. Based on the study of David Ingram the problem with mixing investment
and commercial banking is that insttuton have historically gone too far to prop up weak and
underserving companies, leading to bubbles and disastrous busts. Mixed-business banks have the ability
to create excitement and hype surrounding partcular companies while injectng large sums of capital to
prop up their stock valuatons. Without paying attenton to the fundamental strength of sectors and
individual companies, however, this behavior is almost guaranteed to end in disaster.
Insurance Companies
Insurance companies pool risk by collectng premiums from a large group of people who want to protect
themselves and/or their loved ones against a partcular loss, such as a fire, car accident, illness, lawsuit,
disability or death. Insurance helps individuals and companies manage risk and preserve wealth. By
insuring a large number of people, insurance companies can operate profitably and at the same tme pay
for claims that may arise. Insurance companies use statstcal analysis to project what their actual losses
will be within a given class. They know that not all insured individuals will suffer losses at the same tme
or at all. (Investopedia)
Some people say that not having insurance is like skydiving without a parachute with that being said why
people stll dont buy insurance. There are three reasons why people don t buy insurance according to
Life Matters the first one is some people do not have enough income to buy insurance the second one is
people think they are healthy so they do not need insurance and the last reason is people think they are
to old enough to buy insurance.
Savings and Loans
Savings and loan associatons, also known as S&Ls or thrifts, resemble banks in many respects. Most
consumers don't know the differences between commercial banks and S&Ls. By law, savings and loan
companies must have 65% or more of their lending in residental mortgages, though other types of
lending are allowed.
Saving and loans emerged largely in response to the exclusivity of commercial banks. There was a tme
when banks would only accept deposits from people of relatvely high wealth, with references, and
would not lend to ordinary workers. Savings and loans typically offered lower borrowing rates than
commercial banks and higher interest rates on deposits; the narrower profit margin was a byproduct of
the fact that such saving and loans were privately or mutually owned. (Investopedia)
Credit Unions
Credit unions are another alternatve to regular commercial banks. Credit unions are almost always
organized as not-for-profit cooperatves. Like banks and S&Ls, credit unions can be chartered at the
federal or state level. Like saving and loans, credit unions typically offer higher rates on deposits and
charge lower rates on loans in comparison to commercial banks.
In exchange for a little added freedom, there is one partcular restricton on credit unions; membership is
not open to the public, but rather restricted to a partcular membership group. In the past, this has
meant that employees of certain companies, members of certain churches, and so on, were the only
ones allowed to join a credit union. In recent years, though, these restrictons have been eased
considerably, very much over the objectons of banks. (Investopedia)
As defined credit unions are another alternatve to regular commercial banks but why do people have to
find alternatve if there are big banks. According to Stan Hollen in 2010 Credit unions are outperforming
big banks, and gaining members because of it. In 2009, consumers saved $7.3 billion by using credit
unions rather than banks.

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