A commercial bank is a financial services provider which offers services directly to private individuals. This differentiates it from a central bank which issues banknotes and steers financial policy on behalf of a government and only provides services to banks.
In Switzerland, commercial banks are subordinate to the laws laid out in the Federal Act on Banks and Savings Banks. Most Swiss commercial banks subscribe to self-regulatory organizations and are also regulated by FINMA.
Retail banks, investment banks, broker banks, merchant banks and private banks are all examples of commercial banks. The primary business of commercial banks is investing money on behalf of third parties.
Retail banks typically invest in loans – including business loans, mortgages and personal loans. However, they may also invest in securities and debt instruments such as bonds. They also earn revenues by providing financial services such as investment management, money transfers, payment and payment acceptance facilitation services, liquidity solutions and cash management services.
Private banks typically invest in securities or venture capital on behalf of high-net-worth entities. They may also provide some or all of the same services provided by retail banks.
Investment banks specialize in direct investment in enterprises and in negotiating corporate mergers and acquisitions with the aim of increasing the value of their investments.
Broker banks invest in loans made available to securities traders in the form of leverage. Broker banks may also offer custodial services. Custodian banks do not invest money but simply provide a service in managing securities on behalf of their owners – normally in exchange for fees.
Commercial banks are themselves enterprises and can go bankrupt if their investments fail. In Switzerland, commercial banks which accept investment in the form of money deposited at the bank in exchange for account balances are required to subscribe to the depositor protection scheme managed by Esisuisse.
Swiss banking comparisons