A commercial bank is a financial institution that accepts deposits, makes loans, and provides payment services. In the process of lending, it creates deposits — and therefore money.

Commercial banks are not simply intermediaries that lend out existing deposits. They expand their balance sheets when they lend, and they manage capital, liquidity, and credit risk.[1]

Because they finance illiquid assets with liquid liabilities, they are vulnerable to runs. Deposit insurance and central-bank liquidity are designed to reduce that vulnerability.[2]

Sources

  1. McLeay, Michael; Radia, Amar; Thomas, Ryland. Money creation in the modern economy. Bank of England Quarterly Bulletin. 2014. View source Accessed Nov 11, 2026.
  2. Diamond, Douglas W.; Dybvig, Philip H.. Bank Runs, Deposit Insurance, and Liquidity. Journal of Political Economy. 1983. View source Accessed Nov 11, 2026.