Banks are the driving force of all economies globally, as they provide the capital for crucial infrastructural projects, growing SMEs, and owning a home.
Modern banking may seem different than in the past, as mediums like online banking, peer-to-peer mobile payments now flourish, not negating the emergence of megabanks also but the fundamental tenets are the same.
Commercial banks in the U.S. control $15.58 trillion in assets.
- Almost half that amount is accounted for by the five biggest banks, with JP Morgan Chase alone accounting for 13% of the total.
- Banks employ approximately a million Americans.
- So it is very paramount that these banks stay financially sound.
But what exactly is commercial banking and how different is it from other kinds of banks? This guide would grant you a more in depth look at the commercial banking career paths.
What is Commercial Banking?
A commercial bank is precisely what you’d think of when you hear the word ‘bank’, a building with branches with lots of people flocking in and out transacting business. Basically, commercial banks are financial institutions that are given licenses to receive and lend out clients’ deposits.
The client base of commercial banks is made up of both individuals and businesses (in some cases the term ‘commercial bank’ is utilized just for businesses while ‘retail bank’ is utilized for individuals but more often commercial banks encompass both types of clients).
Commercial banks offer different kinds of services to their customers, these services include safeguarding their deposits, proposing investment products, providing checking and bill pay services, loan services, funds collected from other banks through checks or wire transfers, processing credit card transactions, foreign currency exchange and the storing of valuable items in safe deposit boxes.
Banks generate profits predominantly from collecting fees and offering loans to customers. There are various types of commercial bank accounts including checking, savings, and trusts and everyone has a distinctive fee associated with servicing the accounts. Most people primarily use bank for the purchase of a home, this is known as a mortgage but also for other reasons like small business loans. Larger businesses obtain loans for reasons including the financing of new plants and equipment.
The difference between the interest rate paid to depositors and the rate they loan money to customers is called the ‘spread’ or net interest margin. The broader the margin is, the more profitable loans are for the banks. Banks are supposed to lend out the deposits but are obligated to keep an adequate amount of cash in ‘reserve’ to meet potential withdrawals from depositors at all times. The reserve requirements are usually set by the government but can be adjusted through monetary policy.
If the Federal Reserve wants more capital accessible in the system to help grow the economy it reduces the reserve requirement, this allows more money to be lent out for construction projects, home mortgages, and small business loans.
In the reverse case, if it wants to slow down economic growth, it can raise the reserve requirement.
Commercial Banks are usually regulated on the state level but overseen on the Federal level by the Federal Deposit Insurance Corporation (FDIC). Customers depend on the banks to safeguard their deposits and accounts which are insured up to $250,000 by the FDIC, and is fully backed by the faith and credit of the United States. This amount was actually increased from $100,000 of coverage since the financial crisis, to build more confidence in the financial system.
There have been a few notable bank failures from the financial crisis. The biggest been when the Seattle-based Washington Mutual’s $307 billion assets were assumed by JP Morgan Chase in 2008.
To put this into context, from the above period of 2005 to 2007 there was just 3 total bank failures in the U.S. In 2010 alone, there was 157 failures. For an updated list of bank failures, FDIC keeps their “Failed Bank List.
What are the Different Types of Commercial Banks?
Community Banks
Employees usually know everyone that walks into a community bank. Community banks focus their attention on local families and businesses and are deeply involved in their communities. They are mostly independent, locally owned and operated.
Regional Banks
Regional banks basically are mid-sized depository institutions that fall somewhere between a community bank and larger money center banks. They operate within a certain region, or group of states, within the U.S. great examples of regional banks are KeyBank headquartered in Cleveland, Ohio and Comerica in Dallas, Texas.
Bulge Bracket Banks
Bulge bracket banks, also called money center banks, are huge, multi-national banks. Due to their humongous nature, they mostly have different divisions which include commercial banking, investment banking, and asset management all under one roof. Bulge bracket banks with commercial banking operations include Bank of America JP Morgan Chase and Barclays.
What are the Different Careers in Commercial Banking?
Lots of people are needed in a bank to achieve optimal performance. Below are some of the most common kinds of positions at a commercial bank.
Customer Service in Commercial Banking
This category is broad and includes all the employees who directly interact with customers daily, often at local branches. These usually include bank tellers, customer account specialists, and administrative support staff. They are responsible for assisting customers with basic account transactions such as making deposits, opening accounts, cashing checks, processing mortgage documents, and dealing with inquiries and problems.
Branch Manager in Commercial Banking
Branch managers are the supervisors for these local branches. They are responsible for ensuring the branches run seamlessly and are adhering to the banking rules and regulations. They also create budgets, handle employee scheduling and training, sign-off on wire transfers, and every other supervisory decision while helping to build the bank’s customer base.
Relationship Manager in Commercial Banking
The relationship manager is responsible for marketing various banking products to the customers of the bank. Depending on the level of products the banker is permitted to provide, he may be regarded as a Bank Marketing Representative, Relationship Manager or Financial Advisor. These offerings may include specific CDs or other investment instruments. This is the person responsible for calling you if you have an exceptionally high balance in a low-yielding account, they check and suggest you put it into a higher-yielding CD or certificate of deposit.
Loan Officer in Commercial Banking
Loan officers are responsible for soliciting loans for the bank, they meet with customers and ensure loan applications are filled out appropriately while also performing credit analysis on loan applicants. They also analyze credit reports for individuals or more complex financial statements for businesses.
These loans include traditional mortgage loans and lines of credit. If a loan officer is originating mortgages, it must possess a Mortgage Loan Originator (MLO) license.
What’s the Compensation at a Commercial Bank?
The compensation for commercial bankers is not as high as some other careers in finance. The natural inclination of a bank is to keep costs low and this extends to compensation for its workers. According to the Bureau of Labor Statistics, the average compensation for a bank teller is $24,940 annually.
This may seem very low but it’s majorly due to the high rate of part-time employees working as tellers. The BLS also states that the average pay for a branch manager is $57,081 and $71,386 for loan officers. Compensation continuously increases as you get into higher levels of bank management.
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How do I Get Hired by a Commercial Bank?
Commercial banking employment is very cyclical in nature but isn’t overly strenuous. Typically, you’d require a bachelor’s degree to become a bank manager, loan officer or any middle-management position and higher but a Master’s degree in Finance or MBA is usually preferred. Relationship managers usually require extra licenses like Series 7 or 6 if they provide investment or insurance products. For most customer service roles, including tellers, a high school diploma is required because there is usually extensive on-the-job training.
A career path in commercial banking is a great way to help individuals reach their financial objectives in life. Whether this is acquiring a home, starting a small business, or simply building a playground for the community, commercial banking can be a very beneficial career path.
