Commercial Bank

A Commercial Bank is a financial intermediary that offers a broad range of deposit accounts, including checking, savings deposits and extends loans to individuals and businesses. After the Great Depression, the U.S. Congress marked the differences between Commercial Bank and Investment Bank activities. Commercial Banks were to only engage in banking activities, such as those listed above, whereas Investment Banks such as brokerage firms, were to be limited to capital market activities such as the sale of corporate or municipal government bonds and securities.

However, under U.S. law the two classifications no longer have to be under separate ownership and in some other jurisdictions, the strict separation of investment and commercial banking was never established.

When commercial banks began offering mortgage loans, some in the U.S. that were less diligent about the creditworthiness of their customers, got caught in the 2008 financial crisis. Among the commercial banks that were either closed or acquired were Security Pacific Bank in Los Angeles, Freedom Bank in Florida, and a couple other banks located in the Midwest.  

But the biggest news-making commercial bank failures were the three main banks of Iceland: Landsbanki, Glitnir, and Kaupthing.  For details about Iceland’s economic meltdown see our reportFinancial Crisis Hits Iceland.