This refers to the practice of acceptability deposits, giving loans, advising and assisting customers on monetary matters. A bank is therefore an institution where banking takes place. There are five main types of banks
• Commercial banks
• Merchant banks
• Serving banks
• Investments or developments banks
• Central banks
NB: In this page we will be dealing with just a central and commercial banks
The commercial bank is the principal banking institution, it is a business set up to transact normal banking business,(that is accepting deposits, giving loans and providing monetary services in order to make profit for ir owners. In addition to their customers bank law obligations to their customers, which require the banks to meet all demands for cash(notes and coins). Commercial banks are also called joint-stock banks examples include Amity bank, Union bank, CBC standard chartered bank, BICEC, SGBC.
Roles of Commercial Banks
It is the basic function of the commercial bank to accept deposits. There are 3 main types of deposits which are accepted by the commercial banks namely savings accounts, fixed accounts and current account.
Commercial banks make payments on behave of its customers the main means of payments is by the use of cheques. Cheques makes it possible for bank deposits to be transferred from one person account to that of another. Methods of payments by the commercial banks could also be made by standing orders, direct debits and credit transfer.
Lending to customers.
Commercial banks loan to the customers. This advances are made to this customers either in the form of overdraft, bank loans or by discounting bill of exchange.
Acting as a foreign exchange transactions
The commercial banks assist traders engaged in foreign trade as well as their customers who want to travel abroad by issuing them with foreign currencies, letters of credit and travelers cheque.
Act as references
Commercial banks act as references in confirming the financial standing of customers in contact of trade for example. A supplier may request reference from a new customer who wants to buy goods on credit. The new customer to act as reference by giving the relevant information’s to the supplier.
Keeping of values
Commercial banks keep their customers valuables such as wills, certificates, jewleries , land deeds, etc.
Night of valuables facilities
Some banks provide facilities so that their customers can deposit money in a special safe in the bank not side working overs.
Acting as agent for customers
Banks act as agent for their customers in the purchase or sale of stock exchange securities. Acting as trusties and exchange: commercial banks act as trustees and executors in the distribution of a deceased person’s estate.
The central bank
The central bank is the state owned bank which is establish to control and supervise the countries monetary system. It exercises control over all examples of central banks are the Bank of England, BEAC and the central of Nigeria. BEAC (Banks of Central African States) functions as the central bank of Cameroon and the other Central African countries.
Roles of the Central Bank
Sole currency issuing authority
The central bank is the only authority empower by law to issue the currency of a country. This functions enables the central bank to control the amount of money in circulation.
Banker to the government
The central bank acts as the banker to the government by managing the government account, the national debt and supervising foreign exchange control the central bank advices the government on financial matters and maintains close links with over sees central bank and international monetary organizations e.g IMF(International monetary fund).
Baker to the commercial banks
The commercial banks deposit part of their cash reserve in the central bank and they draw notes and coins from the central bank when they need cash. The central bank assist the clearing of cheques and enables the central bank to control the commercial bank.
Storing the country’s Gold and foreign exchange reserve
The central bank holds the country’s gold and foreign exchange reserve and takes measures to safeguard them.
Lender of last resorts
The central bank is the lender of last resort to the commercial banks and other financial institutions such as the discount houses. The central bank lends to the commercial banks and the discount houses buy re-discounting bills of exchange or by making advances(i.e giving loans to them to enable them, meet customers demand for cash.
Responsibility for monetary policy
The central bank is responsible for monetary policy. Monetary policy involves regulating the amount of money in circulation to ensure economic stability. The central bank is able to perform this function because of its control over the commercial bank and other financial institutions.