Most people meet the financial system at a commercial bank. It is where paychecks get deposited, mortgages get signed, and small businesses open checking accounts. These institutions take in deposits and lend that money out, earning a spread between the interest they pay savers and the interest they charge borrowers.

The model sounds simple, but it carries risk. Banks keep only a fraction of deposits on hand, because most depositors will not ask for their money at once. If too many do, the bank faces a run. That is what happened to Silicon Valley Bank in 2023, when a wave of withdrawals overwhelmed its reserves. Deposit insurance, like the FDIC in the United States, exists to prevent small runs from becoming panics.

Commercial banks differ from investment banks, which focus on securities and corporate finance. They also differ from central banks, which do not serve ordinary customers. In many countries, the line between commercial and investment banking has blurred over time, leading to debates about how much risk depositors should be exposed to.

Main services

• Checking and savings accounts
• Consumer and business loans
• Mortgages
• Credit cards
• Payment processing