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Unit 9: Commercial Banking Services

inadequate transportation and communication facilities. Unit banking gave way to branch Notes
banking in many parts of USA with the economic interdependence of large areas, the development
of transportation and communication, the growth of big business firms, a more mobile population
and increasing emphasis placed on location and convenience.
The banking systems operating in different countries may be classified into branch banking and
unit banking system. Unit banking exists when banking services are provided by single offices.
Some of these banks are often allowed to have some branches within a limited area. These unit
banks are linked together by the correspondent bank system. The correspondent bank system
acts as a medium for remittances between one bank and another and provides facilities for
consultation for lending risks and sharing loan business.

Did u know? Approximately a third of American banking offices are unit banks. The presence
of unit banks in American banking system is partly a be termed as local banking system
emphasizing the limited areas served by result of law, vested interests and the ability of
the unit type of bank organization to meet the demands of banking customers. In the
absence of transportation and communication facilities in the nineteenth century, the
most practical banking organization was unit banking. The unit banking system in USA
would perhaps most banks rather than a form of bank organization. Unit banking is
largely concentrated between the Mississippi and the Rockies.

9.4 Functions of Commercial Bank

The functions of a commercial bank are:
1. To change cash for bank deposits and bank deposits for cash.
2. To transfer bank deposits between individuals and\or companies.
3. To exchange deposits for bills of exchange, government bonds, the secured and unsecured
promises of trade and industrial units.
4. To underwrite capital issues, they are also allowed to invest 5% of their incremental
deposit liabilities in shares and debentures in the primary and secondary markets. The
commercial banks have set up subsidiaries to provide advice on portfolio management or
investment counseling. They also offer their constituents services to pay insurance advice
on-tax problems and undertake executive and trustee services.

9.5 Transformation Services

Banks combine various types of transformation services with financial intermediation. They
provide three transformation services when they undertake intermediation process.
Firstly, liability, asset and size transformation consist of mobilization funds and their allocation
(provision of large loans on the basis of numerous small deposits).
Secondly, maturity transformation by offering the savers, the relatively short-term claim on
liquid deposits they prefer and providing borrowers long-term loans which are better matched
to the cash flows generated by their investment.
Finally, risk transformation by transforming and reducing the risk involved in direct lending
by acquiring more diversified portfolios than individual savers can. Commercial banks by
effectively appraising credit requests can channel funds into productive uses.

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