This lesson establishes the foundational structure of commercial banking, its evolution, and its role in the economy. The course at the University of Ha’il defines commercial banks as financial institutions that accept deposits and extend credit to businesses and individuals .

1.1 Defining Commercial Banking

A commercial bank is a financial institution that accepts deposits from the public and uses those funds to extend loans to businesses and individuals. This is the classic model of financial intermediation. The primary function is to channel funds from savers to borrowers, facilitating economic growth and commerce. The Coursera Commercial Banking module traces the historical evolution of banking from its origins, defining core functions and explaining the regulatory framework governing banks .

1.2 The Commercial Bank Business Model

Commercial banking is characterised by several key features :

• Financial Intermediation: The core business is intermediating between depositors (savers) and borrowers.

• Lending Focus: A significant portion of income is generated by deploying funds into loans.

• Deposit Funding: The primary source of funding is customer deposits.

• Regulatory Oversight: Banks operate under strict regulatory frameworks designed to ensure stability and protect depositors.

1.3 Goals and Constraints of Commercial Banks

The strategic goals of commercial banks include profitability, growth, safety, and liquidity. The NPTEL course on Management of Commercial Banking covers the goals and constraints faced by banks . A key learning outcome at the University of Ha’il is the ability to distinguish between different aspects of bank funding and commercial loans .