Difference Between Central Bank and Commercial Bank in Detail

The banking sector plays a pivotal role in the economic growth and stability of a nation. As key financial institutions, banks are instrumental in regulating the financial health of a country.

Through their critical functions such as mobilising funds and facilitating credit, banks create a bridge between the government and the citizens, propelling the economy forward.

Predominantly, banks are categorised into two types - central banks and commercial banks. The central bank is the supreme banking authority that frames the monetary policy of a country.

Commercial banks, in contrast, are the financial entities that cater to the financial needs of individuals and businesses by providing deposit and loan facilities, thereby facilitating the circulation of money.

Difference between central bank and commercial bank is a vital topic to be studied for the commerce related exams such as the UGC-NET Commerce Examination.

In this article, the readers will be able to know about the difference between central and commercial banks in detail along with some other related topics.

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Central Bank Meaning

A central bank, often referred to as the "bank of banks" or the "banker's bank," is a financial institution that is typically government-owned or government-controlled and serves as the apex monetary authority in a country. Central banks are responsible for regulating and overseeing the nation's banking system, controlling the money supply, implementing monetary policy, and ensuring overall financial stability. They also issue currency, hold foreign exchange reserves, and act as lenders of last resort to commercial banks during financial crises.

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Commercial Bank Meaning

A commercial bank, also known as a retail bank, is a financial institution that primarily serves the public and businesses by providing a wide range of banking services. These services include accepting deposits, granting loans, facilitating payments, offering checking and savings accounts, and providing financial advice. Commercial banks are privately-owned entities, and they operate for profit. They play a crucial role in the financial system by acting as intermediaries between savers and borrowers, helping to allocate capital and support economic activity.

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Difference Between Central Bank and Commercial Bank

The difference has been stated below.

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Conclusion

Central banks and commercial banks are distinct entities with different roles and functions within the financial system. Central banks are primarily responsible for managing a nation's monetary policy, regulating the financial sector, and ensuring economic stability, with a focus on macroeconomic goals. Commercial banks, on the other hand, are private financial institutions that provide a wide range of services to the public, catering to individual and business banking needs while operating for profit.

Difference between central bank and commercial bank is a vital topic as per several competitive exams. It would help if you learned other similar topics with the Testbook App.

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