What is the difference between a central bank and a commercial bank?

The distinction between a central bank and a commercial bank is fundamental to understanding the financial system. Central banks, such as the Central Bank of St. Louis or the Central Bank of Kansas City, serve as the primary monetary authority for a country. Their primary functions include regulating the money supply, overseeing monetary policy, maintaining economic stability, and providing financial services to the government and commercial banks. Central banks have the power to issue currency, serve as a lender of last resort during financial crises, and manage national interest rates to promote economic growth and control inflation. In contrast, commercial banks primarily focus on providing financial services to individuals and businesses. They facilitate everyday banking activities, such as accepting deposits, processing loans, and offering checking and savings accounts. Commercial banks operate for profit and rely on customer deposits to fund loans and other financial products. While they must adhere to regulations set forth by central banks and governmental bodies, they operate independently in terms of their business practices. Understanding this differentiation is essential for individuals and businesses navigating the financial landscape, as central banks and commercial banks fulfill distinct yet complementary roles in the economy. For more information about the nature of these institutions, it may be helpful to explore the relevant sections on their web pages.