Secondary Functions of Commercial Banks

Beyond accepting deposits and lending, a commercial bank performs a wide range of secondary functions that turn it into a comprehensive financial-services provider. These fall into two groups: agency functions and general utility services.

Agency functions

Here the bank acts as its customer's agent, carrying out instructions on the customer's behalf:

• Collection and payment of cheques, bills, dividends, interest and other periodic dues.
• Transfer of funds from one account or place to another on the customer's instruction.
• Purchase and sale of securities such as shares and bonds on the customer's behalf.
• Acting as a trustee or executor of a customer's property or estate when appointed.
• Payment of standing instructions — insurance premiums, subscriptions, instalments — on the due date.

General utility services

These are made available to the public generally, not tied to any one customer's specific instruction:

• Safe deposit lockers for the safe custody of valuables and important documents.
• Letters of credit and travellers' cheques, giving a customer purchasing power away from home without carrying cash.
• Underwriting of shares and debentures, whereby the bank agrees to take up any part of a company's new issue that the public does not subscribe to, for a fee.
• Supplying trade and credit information to help assess a prospective customer's creditworthiness. …