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Commercial banks

Privately owned banks operating current accounts, receiving deposits, taking in and paying out notes and coin and making loans, in the U.K., through a large number of branches. Sometimes referred to as retail or deposit banks. Formerly and still sometimes called joint-stock banks and also incorrectly clearing banks, since not all the commercial banks in the U.K. are members of the London Bankers Clearing House.

In the U.S. these banks are refered to as member banks and in Western Europe as credit banks to distinguish them from investment banks. In most countries the commercial banks are concerned mainly with making and receiving payments, receiving deposits and making short-term loans to private individuals, companies and other organizations. The banks also provide a number of other services to their cutomers, trustee and executor facilities, the supply of foreign currency, the purchase and sale of securitites and, more redently credit transfers, personal loans and credit card facilities. The banks have also in recent years diversified into other financial services, in competition with the finance houses and the merchant banks, such as facilitating venture capital and managing unit trusts.

The treasury, throught the Bank of England (in the U.K.), has wide powers to control the activitites of the commercial banks in the interest of national monetary policy. Until recently, competition between the commercial banks was mainly restricted to the service they offer, since overdraft and deposit rates were identical and bank charges very similar. The abandonement of ceilings on bank advances in favour of the new system of credit control, however, was carried out on the understanding that the banks would end their agreement not to compete in rates of interest. The banks no longer base their deposit and overdraft rateson bank rates, but publish their own base rates.

Reference: The Penguin Business Dictionary, 3rd edt.