According to the banking roles, there has the difference between Central bank and commercial bank. However, today we explain the difference between these banks. Under the direct supervision and control of the main bank of the country, other banks are formed and controlled, they are called a central bank. On the other hand, it is a commercial bank that formed and operated for commercial purposes.
Concept of Central Bank
Central Bank is the single and most prominent banking institution, which plays an important role as the advisor and guardian of the country’s overall financial system from government control. We know that this bank works as the government bank of the country. So the central bank is:-
- Government and other bank bankers
- Mortgage of the bank and financial institutions
- Regulators and directors of the country’s currency market
- Above all, the responsibility of implementing the country’s overall financial policy as the representative of the government
Concept of Commercial Bank
Commercial banks generally collect small saving of money through various accounts in exchange for interest, and from there it lends money to other parties for interest. And the difference between these two interests is the commercial bank’s profit. This type of bank is called the short and medium term loan dealer. However, you can follow the Bank of America Hialeah as a commercial bank. Borrowed money lenders, profit-making intermediaries. So the commercial bank is:-
- Borrowers between capital and money
- Collect money from the people through different accounts on very low interest
- They have earned profits by offering different types of services
- Provided that the money collected from the public should be given back as soon as possible.
- The collected money is given to the public as a loan at a higher interest
Additional information about Commercial Bank:
Difference Between Central Bank and Commercial Bank
Commercial Bank: Commercial banks are formed according to the common banking laws and organizational laws of every country.
Central Bank: The central bank is formed as a government special act or ordinance.
Differences in Number
Commercial Bank: There may be many commercial banks in one country for the sake of the economy.
Central Bank: Each country has only one central bank.
Differences in Ownership
Commercial Bank: This bank can be formed in any proprietorship, but in the current modern world there is a tendency to form a bank in private ownership.
Central Bank: These banks can be established by public, private or governmental and private joint ventures. However, in the partition of the country, ownership of the bank is owned by the government.
Differences in Providing Loan
Commercial Bank: Commercial banks give small and medium-term loans to individuals or organizations according to nature.
Central Bank: Central bank gives loans to the banks and the government.
Differences in Controller of foreign currency
Commercial Bank: Commercial banks cannot control foreign currency.
Central Bank: The central bank maintains the sole responsibility of the banks in controlling the foreign currency.
Differences in Re-presentation
Commercial Bank: Commercial banks represent clients at home and abroad. If it is empowered, then the central bank can also represent.
Central Bank: The central bank only acts as a government representative.
Differences in Clearing House
Commercial Bank: Commercial banks decided to settle its debts as a member of the central bank’s fixed house.
Central Bank: The central bank serves as the clearinghouse of all the listed banks of the country.
Differences in Competition
Commercial Bank: Commercial banks are in intense competition with each other.
Central Bank: Central banks are single and non-traditional organizations.
Finally, we can say that the main objective of the commercial bank is to make a profit and the main objective of the central bank is to improve the overall development of the country and the welfare of the people. Commercial banks play a pivotal role in improving the economy and the central banks help the commercial banks to properly and systematically manage their bills.