What Is the Importance of Commercial Banks?

Commercial banks play a key role in the economy both at a national and global level. The importance of commercial banks include the fact that they serve as a trusted and safe place where the funds of people and businesses can be kept on their behalf, reducing the necessity to keep large sums of money on the private or business premises. On the international level, commercial banks serve as a source for transferring money from one country to another, eliminating the need to travel with money. The money paid by depositors into their savings accounts are also used by the banks to foster economic growth through the lending of such money to various businesses and individuals.

An importance of commercial banks is the role they play in the development of the economy. They help various consumers, both individuals and businesses, purchase items that they would not have been able to purchase without financial assistance from the banks. This includes the purchase of cars, houses and more capital intensive items like machinery or manufacturing plants. They also make it easier for their customers to repay the money through the arrangement of long-term financial plans where the money will be spread over a determined length of time. The advantage is that this makes it easier for the borrowers to repay the money, even if they have to pay interest on the loan as a sort of service charge.

Another importance of commercial banks is the fact that they keep both people and their money safe through the services they provide. Since the banks make it unnecessary to keep large sums of money in the home or office by providing a safe alternative, people can rest easier knowing that their money is safe. They can also feel safer knowing that the absence of money in their homes or places of business makes these places less attractive to thieves.

Something else that contributes to the importance of commercial banks is the fact that the money held on behalf of customers in the form of savings deposits cannot be categorized as idle money. This is because that money also earns something for the depositor in the form of interest. On the other hand, if the money is put away in the home or in a safe, it would not earn anything and would be classified as idle money.