How do commercial banks provide financial services and earn profits?

"Depository Financial Institutions Not all depository financial institutions are alike. Most people call the place where they save their money a “bank.” Some of those places are indeed banks, but other depository institutions include thrift institutions and credit unions. Chapter 15 Understanding Money and Financial Institutions 593 Commercial Banks A commercial bank is a profit-oriented financial institution that accepts deposits, makes business and consumer loans, invests in government and corporate securities, and provides other financial services. Commercial banks vary greatly in size, from the “money center” banks located in the nation’s financial centers to smaller regional and local community banks. As a result of consolidations, small banks are decreasing in number. A large share of the nation’s banking business is now held by a relatively small number of big banks. There are approximately 5,011 commercial banks in the United States, accounting for nearly $16 trillion in assets and $9 trillion in total liabilities. 10 Banks hold a variety of assets, as shown in the diagram in Exhibit 15.6 . Table 15.4 lists the top 10 insured U.S.-chartered commercial banks, based on their consolidated assets. Exhibit 15.6 Assets of FDIC-Insured Commercial Banks, 2017 Source: “FDIC: Statistics on Depository Institutions Report for Commercial Banks as of 6/30/17,” https://www5.fdic.gov, accessed September 7, 2017. Customers’ deposits are a commercial bank’s major source of funds, the main use for which is loans. The difference between the interest the bank earns on loans and the interest it pays on deposits, plus fees it earns from other financial services, pays the bank’s costs and provides a profit. Commercial banks are corporations owned and operated by individuals or other corporations. They can be either national or state banks, and to do business, they must get a bank charter—an operating license—from a state or federal government. National banks are chartered by the Comptroller of the Currency, who is part of the U.S. Treasury Department. These banks must belong to the Federal Reserve System and must carry insurance on their deposits from the Federal Deposit Insurance Corporation. State banks are chartered by the state in which they are based. Generally, state banks are smaller than national banks, are less closely regulated than national banks, and are not required to belong to the Federal Reserve System. 594 Chapter 15 Understanding Money and Financial Institutions This OpenStax book is available for free at http://cnx.org/content/col25734/1.7 Top Ten Insured U.S.-Chartered Commercial Banks, Based on Consolidated Assets, 2016 Bank Consolidated Assets 1. JP Morgan Chase & Co. 2,082,803,000 2. Wells Fargo & Co. 1,727,235,000 3. Bank of America Corp. 1,677,490,000 4. Citigroup 1,349,581,000 5. U.S. Bancorp 441,010,000 6. PNC Financial Services Group 356,000,000 7. Capital One Financial Corp. 286,080,000 8. TD Bank North America 269,031,000 9. Bank of New York Mellon Corp. 257,576,000 10. State Street Bank and Trust Corp. 239,203,000 Table 15.4 Source: “Insured U.S.-Chartered Commercial Banks That Have Consolidated Assets of $300 Million or More as of 12/31/16,” https://www.federalreserve.gov, accessed September 7, 2017. Rating Banks: Mobile and Branch Banking a Must Which banks provide the best customer satisfaction? J.D. Power (JDP), based in Costa Mesa, California, ranked 136 major banks in 11 U.S. regions based on responses from more than 78,000 retail banking customers. In the research company’s 2017 U.S. Retail Banking Satisfaction Study, top performers received high ratings in account information, channel activities (such as branch, mobile, website, and ATM), fees, problem resolution, and product offerings. Chapter 15 Understanding Money and Financial Institutions 595 Findings also suggest banks that provide a user-friendly digital experience will attract and retain customers, and this digital experience must work seamlessly with a local branch system as younger customers avail themselves of other banking services such as mortgages and wealth management in the future. Other key survey findings include: • Regardless of age group, more customers than ever are using mobile banking. • More than 70 percent of all customers visited a local branch an average of 14 times over the past year, and their overall satisfaction was 27 index points higher than those who did not visit a bank branch. • Close to 65 percent of bank customers have mobile payment services linked to their accounts. • Successful problem resolution is a key driver of customer satisfaction, and younger customers prefer to resolve issues online or via social media. Assessing customer satisfaction is also the goal of the American Customer Satisfaction Index (ACSI), which granted Citibank the top spot in the national bank category in its most recent survey, with a 12 percent jump in its overall score. Other top super regional banks in the ACSI study include BB&T, Fifth Third Bank, Capital One, and Citizens Bank. Overall, national banks improved their overall customer experience the most, up more than 6 percent from ACSI’s previous survey. Sources: “Digital, Branch, Drive-Through or ATM? Yes, Please! Say Bank Customers in J.D. Power Study,” http://www.jdpower.com, accessed September 11, 2017; ACSI: Customer Satisfaction with Banks, Insurance Rebounds, http://www.theacsi.org, accessed September 11, 2017; American Bankers Association, “Millennials and Banking,” https://www.aba.com, accessed September 11, 2017; Tanya Gazdik, “Citibank Leads National Banks in Study,” https://www.mediapost.com, November 15, 2016. Critical Thinking Questions 1. What can banks and financial institutions do to retain their customers and make them feel valued? 2. Is there a cost involved in not making customer service a priority? Explain your answer. Chapter 15 Understanding Money and Financial Institutions 596 This OpenStax book is available for free at http://cnx.org/content/col25734/1.7"