Most of the large and powerful modern banks in the world are popularly known as "Commercial Banks". The very term seems to attract all and sundry and everybody seems to be impressed by their strength, trustworthiness, picturesque facade, attractive location and ever smiling staff. But a very few is sure as to why they are called commercial banks or when from the term was being used.
Considering the ever changing functional diversity and characteristics, importance and role in the economy and society, modern banks could have been termed otherwise long back. But clearly it was not done so. Large and strong banks around the world are sill called commercial banks though they are engaged in multifarious activities. Why?
The answer to the question probably lies in the fact that the commercial banks have been historically focusing on trade and commerce. It is true that they mobilized or take deposits from everybody. But while lending they certainly prefer financing trade and commerce. This is not, however, without reasons. The funds comprising mainly deposits of commercial banks are of short-term maturity repayable on demand. Therefore, these are to deployed in the sectors requiring funds for short-term deposits (liabilities) may result in mismatch between the assets and liabilities landing the banks into liquidity crisis.
In order to avoid mismatch between assets and liabilities, the commercial banks prefer financing trade and commerce which require short-term fund. Though the modern commercial banks now a days finance long-term needs, but such portfolio is kept within limits. It is, therefore, quite appropriate that they are called commercial banks. However, they are also currently called deposit money banks in some countries.
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