(a) Distinguish between a:
→mortgage bank and a merchant bank
→commercial bank and a development bank
(b) Explain any four functions of commercial banks
Explanation
(a) →A mortgage bank is a bank or company which offers a loan with their own funds or from warehouse lenders while a merchant bank is a financial institution that provides the services of finance, underwriting, offering business loans, and advice or consultancy on finance.
→Commercial bank is a bank organized to perform public utility banking services, such as accepting deposits, lending money, etc while a development bank refers to a multi-purpose financial undertaking set up to provide financial aid to the industrial and agricultural sector, to encourage development.
(b) - Agency functions: Commercial banks are already agents of the banking system, but they can also be personal agents to their customers. An agent is an individual or institution that carries out activities, in this case, financial operations, on behalf of the principal 9 who is the customer) for a few known commissions.
- Credit creation: Commercial banks are perhaps the only financial institutions with this unique function. Commercial banks create credit by accepting deposits and providing loans, pushing money into the economy.
- Transfer of funds: The transfer of funds from a customer's account to another account is another vital function of banks. Fund transfer is a valid means of paying for transactions, as well as other financial activities. Transfer of funds can be carried out through several ways such as drafts, standing orders, cheques, USSD platforms, and electronic banking.
- Provision of loans: Besides accepting deposits, another function of commercial banks is the provision of loans. The provision of funds to those who require them for transactions is a vital role commercial banks play. Nowadays, customers can now have access to instant loans from commercial banks