Definition, Function and Role of Commercial Banks in the Economy

Banking experts in developed countries defines a commercial bank as a profit-oriented financial institution. To obtain the profit of commercial banks perform the inter mediation function. Because permitted  raise funds in the form of deposits, commercial banks also called depository financial institutions. Based on its ability to create money (demand deposits), commercial banks may also be known as the creator of a commercial bank demand deposits. 

The definition of commercial banks according to Law No. 10 of 1998:"Commercial Bank is a bank conducting business based on conventional or Islamic principles in its activities to provide services in payment traffic."

The functions of commercial banks which are described below shows how important the presence of commercial banks in modern economies, namely:

 1. Creation of money. Money is created by commercial banks demand deposits, namely the means of payment via transfer mechanism (clearing). The ability to create demand deposits of commercial banks led possisi and function in the implementation of monetary policy.The central bank can reduce or increase the money supply by affecting the ability of commercial banks to create demand deposits.


2. Smooth Support Payments Mechanism. Other functions of commercial banks are also very important is to support fluency payment mechanism. This is possible because one of the services offered by commercial banks are the services associated with payment mechanisms.Some services are very well known is the clearing, transfer money, deposit receipt, deposit, gift with cash payment facilities, credit, payment facilities are simple and convenient, such as plastic cards and electronic payment systems.

3. Community Savings Deposits Funds collected by the bank's most common is the deposit of funds. In Indonesia, the fund consists of demand deposits, time deposits, certificates of deposit, savings and / or any other form that can be equivalent. The ability of commercial banks raise funds is much greater than other financial institutions. Deposit funds collected will be distributed to parties in need, primarily through credit.

4. Supports Smooth International Transaction Commercial banks also are needed to facilitate and / or facilitate international transactions, both transactions of goods / services and capital transactions. The difficulties of transactions between two parties of different countries always arise because of differences in geography, distance, culture and the monetary system of each country. The presence of commercial banks operating on an international scale will facilitate the settlement of such transactions. With the commercial banks, the interests of the parties who conduct international transactions can be handled more easily, quickly and cheaply.

5. Storage of Valuable Goods storage of valuable goods is one of the earliest of the services offered by commercial banks. Communities can store valuables such as jewelry owned, money, and diplomas in the boxes provided by the bank intentionally for rent (safety box or safe deposit box). The rapid economic development caused banks to expand services by storing the security or securities.

.6. Provision of Other Services In Indonesia, providing other services by commercial banks are also more numerous and widespread. Currently, we have to pay electricity, phone buying mobile phone bills, send money via atm, paying employee salaries using bank services.These services very easy and gives a sense of security and comfort to those who use it.