Secondary Functions of Commercial Banks

Beyond accepting deposits and lending, a commercial bank performs a wide range of secondary functions that make it a one-stop financial service provider for its customers. These are usually grouped into agency functions and general utility services.

Agency functions

Here the bank acts as an agent of its customer and carries out instructions on the customer's behalf:

• Collection and payment of cheques, bills, promissory notes, dividends, interest and other periodic payments due to the customer.
• Transfer of funds from one place, or one account, to another on the customer's instruction.
• Purchase and sale of securities such as shares and bonds on the customer's behalf, as an agent rather than as a dealer trading for itself.
• Acting as a trustee or executor for a customer's property or estate when appointed to do so.
• Payment of standing instructions, such as insurance premiums, subscriptions or instalments, on the customer's behalf on the due date.

General utility services

These are services offered to the wider public, including people who are not necessarily account holders, and are not carried out as anyone's specific agent:

• Locker facilities for the safe custody of valuables and important documents.
• Issuing 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 buy any portion of a company's new issue that the public does not subscribe to, for a fee.
• Providing trade and credit information to help a business assess the creditworthiness of a prospective customer.
• Foreign exchange dealings, buying and selling foreign currency for customers engaged in international trade. …