Commercial Bank Capital: Understand How Your Bank Works

Commercial bank capital is the margin by which the bank's assets are covered should the bank be liquidated. The FDIC requires that the margin is above a specific minimum amount. A commercial bank must acquire and maintain enough capital to satisfy the FDIC minimal requirement. Many (although not all) commercial bank accounts are insured by the Federal Deposit Insurance Corporation (the "FDIC").

Commercial banks originally existed to accept deposits, make loans, and provide other financial services to businesses. Now commercial banks offer a range and variety of services to everyone, including individual consumers.

Commercial Bank Capital: Understand How Your Bank Works

A commercial bank acquires capital via a variety of sources. The commercial bank is a business whose product is money. Among other revenue sources, commercial bank capital is acquired by when banks "sell" their business and retail clients money in the form of a range of financial services or products such as certificates of deposit and loans. Banks make on their money because the loan interest they charge their borrowers is greater than the interest rate they pay their depositors. No loan is ever 100% secure, so the greater the risk, the higher the interest rate charged by the bank.

Banks generate revenue by charging service fees, such as those on ATMs, encoded checks, automatic overdraft protection services for businesses, and automated telephone banking transfers. Commercial bank capital is also acquired through strategic investments. Since 1989, many commercial banks have shifted their portfolio investment focus to government securities.

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Commercial Bank Capital: Understand How Your Bank Works

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