How the commercial bank

• The amount of money earned by a commercial bank is determined by the spread

between the interest it pays on the interest it generates on the loan issued, known as
net interest income.
• Customers find commercial bank investments, such as savings accounts and CDs,
attractive because they are insured by the Federal Deposit Insurance Corp (FDIC), and
money can be easily withdrawn
• However, these investments traditionally pay very low interest rates compared to
mutual funds and other investment products.
 Type of loan in commercial bank
DEPOSIT
• the largest source by far of funds for banks is
deposits money that account holders entrust to
the bank for safekeeping and use in future
transactions.
• While people will typically maintain accounts for
years at a time with a particular bank, the
customer reserves the right to withdraw the full
amount at any time.
 Wholesale Deposit
• A bank can turn to wholesale sources of funds if
that bank cannot attract a sufficient level of core
deposits
• In many respects these wholesale funds are much
like interbank credit.
• Investors should consider what it says about a bank
when it relies on this funding source.
 Loan
• Loans are the primary use of their funds and the
principal way in which they earn income for most bank.
• Loans are typically made for fixed terms, at fixed rates
and are typically secured with real property.
• often the property that the loan is going to be used to
purchase.
• borrowers can often repay loans early, with little or no
penalty, banks generally shy away from these kinds of
loans. as it can be difficult to match them with
appropriate funding sources