What role do commercial banks play in the economy?

Commercial banks play a crucial and multifaceted role in the economy, primarily through three key functions: accepting deposits, providing loans, and facilitating transactions.

By accepting deposits, commercial banks provide a safe place for individuals and businesses to store their money, which helps maintain liquidity in the financial system. This function is essential for instilling confidence in the economy, as it ensures that depositors have access to their funds when needed.

The provision of loans is another critical service that commercial banks offer. They lend money to individuals, businesses, and governments, which enables these entities to invest, expand, and grow. This lending process is vital for stimulating economic activity and contributing to overall economic growth. The interest on loans also generates income for the banks, allowing them to operate and provide further services.

Lastly, commercial banks facilitate transactions by providing payment services, including checking accounts, debit and credit cards, and electronic payment systems. This makes it easier for consumers and businesses to engage in day-to-day financial activities, supporting commerce and the broader economy.

In contrast, other choices narrow the scope of commercial banks’ functions significantly. While facilitating international trade is an important aspect of banking, it does not encompass the broader functions provided by commercial banks within a domestic context. Providing only savings