Difference between Central Bank and Commercial Bank

Banks are an important part of the economy of a nation. They are the most critical institutions that help regulate the overall economic development of a nation.

Banks help mobilise the money in an economy and act as a connecting link between the government and the general population. Banks act as facilitators of credit in the economy, which is an important component that drives the growth of an economy.

There are two types of banks based on the authority, these are central banks and commercial banks. Central bank can be called the apex bank, which is responsible for formulating the monetary policy of an economy.

Commercial banks, on the other hand, are those banks that help in the flow of money in an economy by providing deposit and credit facilities. Commercial banks provide financial services to the individuals and businesses.

Let us look at some of the points of difference between the central bank and commercial banks.

Central Bank

Commercial Bank

Definition

Central bank is the apex financial institution of the country that is concerned with formation of monetary policies and the way money should be regulated in the economy

It is a type of financial institution that is concerned with providing banking services to the general public and businesses by facilitating deposit, offering loan facilities

Ownership

Central bank is always having public ownership

Commercial banks can be either public or private in their ownership

Number of Banks

There is only one central bank in a country

There can be many commercial banks in a country

Profit Motive

Central bank does not operate for making profit

Commercial banks operate with the motive of earning profit

Clients

Commercial banks and the government

Individuals and businesses

Policy creator

Central banks create monetary policy to regulate interest rates in an economy

Commercial banks do not create any policies that are essential for the functioning of an economy

Source of Money Supply

Central banks are the source of money supply in an economy

Commercial banks run on the deposits obtained from the individuals and hence they perform no such function

This article was all about the topic of difference between Central Bank and Commercial Bank, which is an important topic for Commerce students. For more such interesting articles, stay tuned to BYJU’S.

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