Commercial Banking

Commercial banks make loans to the full spectrum of borrowers, from private individuals, all the way up to major corporations, and municipal, regional, and national government agencies. Commercial banks, a grouping that also includes savings banks and credit unions, finance their loan activities by lending out money gathered from the other side of the business—the funds deposited by individuals and firms.

Banking in the 21st century is in reality a series of interconnected businesses. The biggest banks in the world have grown to become complex, multi-market organizations serving a very diverse group of customers. Major commercial banks, in addition to their lending services, also offer cash management services such as money transfers and account reconcilement, asset-based financing, and equipment leasing. They issue letters of credit supporting global trade. They offer credit card and payment card services to both individual consumers and retail merchants.

Banking as a business is highly sensitive to market cycles. Demand for bank loans is closely tied to economic activity and interest rates. Banks offer customers different banking services to attract deposits [transaction accounts, savings and time deposits (CDs), money market accounts]. Bank deposits are the financial backing for bulk loans to consumers, businesses, and government agencies.

Banks and savings institutions heavily promoted low-cost, adjustable rate mortgage loans during the housing boom years in the early 2000’s, only to find themselves saddled with a mountain of bad debt when the housing bubble finally burst in 2008. Deep exposure to subprime loans caused numerous bank failures, resulting in government bailouts and shotgun marriages of some of America’s largest banks.

The global financial crisis of 2008-2009 substantially altered the competitive landscape of both commercial and investment banks, putting a premium on risk controls and efforts to stay abreast of some new sets of complex financial market regulations. The collapse of Silicon Valley Bank and other regional banks in March 2023 prompted calls for tighter regulation, higher capital levels, and greater liquidity requirements for financial institutions with less than $250 billion in assets. The short- and long-term effects of this on the U.S. and international banking industries are not yet completely known.

Over the last several years the distinctions between the largest commercial banks and investment banks have become less obvious, because of deregulation of the financial sector. The very largest banks in either category compete directly with one another in private placements, project finance, bond underwriting, and financial advisory services. That’s a game for only the largest financial institutions. The majority of the 4,650-plus U.S. commercial banks are community-focused lending institutions serving consumers and small business owners in their region.

Competition for customers is increasing in the financial sector. In recent years, challenger banks (branchless, digital banks), fintech companies, and other non-financial services firms have begun to offer financial services to consumers, businesses, and other organizations that were once offered solely by traditional banks.

At the time of this writing, it’s an open question whether recent market trends will continue unabated over the next several years, or whether banks will review their opportunities and exit from unprofitable lines of business to concentrate on what they see as their core business activities.

Over the years the industry has swung between, on the one hand, pushing ahead into new markets to woo a larger slice of the customer’s wallet, and on the other, focusing efforts on so-called core services to build loyalty and brand recognition with specific customer groups. How this scenario plays out will have a widespread effect on staffing needs across the board.

Commercial banking offers a wide variety of career opportunities, including positions in management, sales, customer service, digital security, and technical support. The size and scope of the industry are broad enough to offer career paths matching most areas of interest, education, and skills. A career in banking is flexible and not necessarily location-specific. Skills and knowledge acquired in many occupations are easily transferable to similar positions in the bank or in another bank located across the country. Banking offers advancement opportunities by moving into positions with greater responsibility or switching from banking to other industries where financial management skills are in demand.