COMMERCIAL BANKING SYSTEM

INTRODUCTION

Commercial banks are very bivalent in any economy because they tee structured to provide working capital loans to the deficit sectors of economy. They do hardly lend money on medium and
long - term because of the character of their liabilities. Banking developed from the activities of the Gold Smith in the 18th Century England. This noble profession and practice that thrives
on trust has developed within the contest of the following principles:

1. The Fractional reserve principle 
2. The public confidence principle 
3. The principle of maturity transformation lie use of short – term deposits to finance long - term loans in the anticipation that new deposits win be made by customers) 
4. The principle of buy low – sell high (obtain cheap deposit to lend at high interest rates). In addition to the above, the basic principles of banking include: - Maintenance of Liquidity and profitability. - Paying and receiving cheques. -Taking deposit, etc. 

2.0 OBJECTIVE

At the end of this unit, you shall be able to:

1.  Define a Commercial Bank 
2. Draw an Organizational Structure of a Commercial Bank 
3. Analysis of the balance sheet items 
4. State the functions of Commercial Banks 

3.0 MAIN CONTENT

3.1 Meaning and Definition of a Commercial Bank

Ozoani, G.C. defines "a bank as an institution that accepts deposits-of money from the public withdrawable by cheque and used for lending”. John Paget defines "a bank on the basis of functions performed by the bank. Nobody can be a banker who does not:

1. Take deposit accounts, 
2. Take current account, 
3. Issue and pay cheques, and 
4. Collect cheques - crossed and uncrossed for its customers 

The Banking Regulation Act of India, 1949 defined a bank “as the accepting for the purpose of lending or investment of deposits of money from the public repayable on demand or otherwise and withdrawable by cheque draft, and order or otherwise”.
In Nigeria, the Banks and other Financial Institutions Act (BOFIA) 1991 (as amended) defined banking as “the business of receiving deposits on current account, savings account or other similar accounts, paying or collecting cheques drawn by or paid in by customers, provision of finance or such other business as the Governor may by order published by gazette designated as banking business”. The adoption in 1999 and subsequent introduction of the universal banking system has brought another dimension to the definition of a bank or banking business in Nigeria.
Section 61 of the BOFIA 1991 (as amended) defined banking as “the business of receiving deposits on current account, savings or other accounts; paying or collecting cheques drawn or paid in by customer; of provision of finance, consultancy and advisory services relating to corporate and investment matters; making or managing investment on behalf of any person; and the provision of insurance marketing services as the Governor of the Central Bank of Nigeria may be Gazette

designate as banking business”. As a matter of fact, any institution that carries its activities within the confines of the two latter definitions is simply a bank and for that matter a commercial bank.

3.2Organizational Structure if a Commercial Bank

The structural pattern or interface of a commercial bank will depend on such issues as size, policy and economic realities on ground. Some banks are structured along regional basis. In this case, in addition to the head offices are the regional or Zonal offices and then the branches/cash centers. The head office is managed by a Chief executive/Managing Director and surrounded by Directors and / or Executive Directors of various functional and sub - functional departments (Legal,

Administration, Finance, Inspection, Credit, Information Technology' etc).
The regional offices are managed by managers who may be in the rank of Deputy or Assistant General Managers. Regional offices report to the head office. The branches and cash centres are managed by officers who in turn report to regional offices. A bank may also be structured on the basis Head Office and then the branches/cash centres. In both regionally structured and non-regionally structured arrangements, the managements are responsible to the Board of Directors.

Self-assessment exercise

Draw an Organizational Structure of a Commercial Bank