Which of the following best describes a commercial bank?

• A. A bank that accepts deposits and is covered by deposit insurance.
• B. A bank that trades in financial assets and is not insured.
• C. A bank that acts as a government lender.
• D. A bank that prints currency.

Answer: (A)

A commercial bank is a financial institution that takes deposits from the public and uses those funds to make loans and provide basic banking services. The key feature is that ordinary people and businesses can deposit money and have it protected by deposit insurance, which helps prevent losses if the bank fails. This combination of accepting insured deposits and offering loans is what defines a commercial bank in most economies.

Deposit insurance is important because it gives customers confidence to save and use banks for everyday transactions, while the bank earns through the interest on loans and other services. Some other types of financial institutions might trade in assets or focus on lending for the government, or they might deal with currency in different ways, but they don’t provide insured deposit-taking and typical consumer banking services. Printing currency is a central bank’s job, not a commercial bank’s.