Comparison between the Commercial Banks and the Financial Institutions

Certainly, many lines of equality and inequality are drawn between the commercial banks and the financial institutions in many things, because the development of concepts of both of them has become separated. Yet, both of these institutions have become unavoidable for development.

Theoretically, the commercial bank is the builder of the loan. But the financial institution is only the broker of the loan. However, the equality and inequalities between these two institutions are described as follows:

Similarities between Commercial Bank and Financial Institutions

1. Both of these two institutions are inspired by the objective of gaining profit.
2. Both of these institutions are financial mediators. And both of them do business with different types of financial means.
3. Both of these institutions buy the primary securities and issue the secondary securities, sell them to the last creditors.
4. Both of these institutions establish or make a good relationship between the savers and the investors. Apart from it, both of them can provide a loan that takes place between the lender and debtor.
5. Both of them take the deposit from others makes and flows loan to their customers.
6. Both of them provide a great deal of liquid means (materials) to society.

Dissimilarities between Commercial Bank and Financial Institutions

There are so many dissimilarities between them, which  are as follows:

Control of Central Bank

All the commercial banks cannot escape from the necessary reserve fund provision. But, this restriction will not be applied to the financial institutions absolutely. The bank should run under the bank policy fixed by the central bank or comply with the obligation to keep the minimum cash stock according to the law. The commercial banks should keep from it. IT is provided for that commercial bank and the interest is not accrued from it. It is provided that the commercial banks in their will cannot take or use such reserve funds kept in this way. But the financial institutions can distribute their services under fewer restrictions. It is good because such control is less to the financial institutions. So, in comparison with a commercial bank, the control of the central bank on the financial institution is lesser.

Nature of the Deposit

The financial institutions cannot open the current account. But the commercial banks can open three types of accounts, savings, current, and fixed accounts. This facility brings the commercial banks to the access of gaining more materials to the source. From the viewpoint of economic and financial transactions, commercial banks are regarded as more important than financial institutions.

Structure of the Investing Materials

In comparison with property, the commercial bank has more liability and such liability is liquidated. The commercial banks should keep cash only from some part of the property. They should distribute their material accordingly. But, this problem is less in financial institutions. So, the distribution of the materials is limited according to the low liquid property. Generally, commercial banks give only short-term loans. But the financial institutions flow the mid-term and long-term loans also.

Differences in the Capacity in Creating Credit

Both of these institutions create credit through the commercial bank has more capacity than the financial institutions of creating credit because the process of creating credit by the financial institution brings many leakages. The commercial bank has such leakages less.

Acceptance of Liability

Financial institutions cannot create money. It is an institution of a loan broker. Whenever the issued cheque by the commercial banks is nearly equal to the cash currency is acceptable. But the financial institutions cannot issue such cheques.