In this article, we’re exploring the difference between a central bank and a commercial bank. Not surprisingly, there are quite a few differences.
We will discuss each of these below and also answer a number of common questions that we receive on the topic.
This article is part of our series on bank account opening in different countries, which you can access for free following the link above.
Feel free to use the table of contents to jump ahead to the sections most relevant to you.
Table of Contents
- Difference Between Central Bank and Commercial Bank
- Banking Services by Commercial Banks
- Banking Services by Central Banks
- Frequently Asked Questions
- Ready to Unlock the Benefits of International Banking?
Difference Between Central Bank and Commercial Bank
The main difference between a central bank and a commercial bank is that a central bank provides banking facilities to commercial banks, while a commercial bank provides banking services to individuals and businesses.
Additionally, the responsibilities of a central bank extend far beyond banking services. Depending on the country, central banks are also typically responsible for managing monetary policy and money supply in an economy.
Lastly, it’s important to note that while most commercial banks are owned by private shareholders, central banks are typically owned directly by the federal government in the specific country (or region) that they serve.
In the following sections, we’ll take a closer look at the specific services offered by central banks and commercial banks. We will also answer a number of additional questions we receive on the topic.
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Banking Services by Commercial Banks
Commercial banks offer a wide range of banking services to individuals and businesses. In most cases, these services range from deposit accounts to credit cards and financial advisory to mortgages. In other words, commercial banks offer the type of banking services that most people think of when they hear “local bank”.
Here’s a closer look at the specific services commercial banks can offer.
- Deposit taking
- Financing activities
- Payment processing
- Investment management
- Foreign currency
- Trade finance
- And more
Banking Services by Central Banks
The specific services offered by commercial banks can actually be broken down into two categories. First, there are the services that a central bank must carry out in order to maintain financial stability in an economy. Second, there are the services that a central bank carries out to support the ongoing operations of commercial banks within the banking system that it regulates. We will discuss both of these below.
Central Bank Core Functions
- Monetary policy
- Issuing currency
- Regulating banks and providing supervision
- Setting foreign exchange and capital guidelines
- Maintaining financial stability in an economy
Central Bank Banking Services
- Short term financing
- Clearing and settlement services
- Payment system oversight
- Discount financing source
- Regulatory support
Frequently Asked Questions
Below are a few of the most common questions we receive from people looking into the difference between a central bank and a commercial bank. If you have further questions you would like to ask our team, don’t hesitate to get in touch.
What Is the Key Difference Between Business Banking and Commercial Banking?
The main difference between business banking and commercial banking is that business banking typically caters to small and medium-sized enterprises while commercial banking typically caters to large corporations. That said, every country and bank is different in the way that they divide business and commercial banking.
What Is the Difference Between Commercial Bank and Specialized Bank?
The main difference between a commercial bank and a specialized bank is that a commercial bank typically serves all clients in a particular jurisdiction while a specialized bank typically focuses on one specific industry or demographic. Likewise, commercial banks typically need to comply with stricter regulations and capital requirements while specialized banks do not.
What Is the Difference Between Central Bank and National Bank?
The main difference between a central bank and a national bank is that a central bank controls money supply, sets interest rates, and maintains financial stability while a national bank is a deposit-taking commercial bank that offers services directly to individuals and businesses. In fact, the only difference between a national bank and a commercial bank is that a national bank is owned by the government while a commercial bank is owned by private shareholders.
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