In my last question, I asked for a comparison of central banks and commercial banks.  The answer touched on commercial banks in the US and the Bank of Canada (Canada's central bank).  Looking at these two types of banks, what services do they provide and to whom?

Expert Answers

An illustration of the letter 'A' in a speech bubbles

Central banks and commercial banks are very different entities.  They have very different missions and deal with very different customers. 

A commercial bank is the sort of bank that we think of when we typically think of banks.  A commercial bank takes in money in deposits, provides services for its depositors, and lends money out to people and companies that need it.  It is a bank that is involved mainly in commerce.  Such a bank will take deposits from its customers.  In return, it will offer them services that are typically associated with checking and savings accounts.  It will offer them the ability to write checks.  It will offer them the ability to make electronic payments to people from whom they have bought goods or services.  It will often offer them credit cards.  It will offer them the use of ATMs.  Using the money deposited, it will offer loans to people who need them and who qualify for them.

By contrast, a central bank is not primarily interested in making money.  Instead, a central bank can be seen as a bank for other banks.  We can also look at it as a bank that is in charge of the money supply of the entire country.  This is not a bank that is taking in deposits and lending out money to individual customers.  A central bank runs a country’s monetary policy.  It sets interest rates.  It buys and sells government securities on the open market.  These actions are meant to keep the country’s economy running in a strong and stable manner.  A central bank also provides services for commercial banks.  It lends them money for short periods of time.  It collects checks that are drawn on one bank and written to a depositor in another bank and makes sure that the money is transferred.

In short, these are completely different kinds of banks.  Regular people and businesses deal with commercial banks every day, but they rarely, if ever, deal with a central bank.  The two types provide very different services to very different people.

See eNotes Ad-Free

Start your 48-hour free trial to get access to more than 30,000 additional guides and more than 350,000 Homework Help questions answered by our experts.

Get 48 Hours Free Access
Approved by eNotes Editorial