Money & Banking
Microeconomic Decision Makers · 2 question types
Exam Frequency Analysis
Past paper frequency (2018 to 2024)
This topic accounts for approximately 4% of your exam marks.
New emphasis in the 2027 syllabus; the functions and characteristics of money and the roles of central and commercial banks are now examined directly. Guidance based on specimen materials.
A commercial bank is a bank that accepts deposits from the public and lends to households and firms, aiming to make a profit.
Their main functions are:
- Accepting deposits. Keeping customers' money safe in current and savings accounts.
- Lending. Providing loans, overdrafts and mortgages to households and firms, charging interest. This is their main source of profit: they pay savers a lower interest rate than they charge borrowers, and keep the difference.
- Providing a means of payment. Debit and credit cards, cheques, direct debits and online and mobile transfers.
- Other services. Foreign-currency exchange, financial advice and safe storage.
Commercial banks matter for the wider economy because their lending lets households spend beyond current income and lets firms invest. More commercial banks usually means more competition, giving customers more choice, a wider range of services and lower charges and interest rates.
Explain the benefits of more commercial banks (4 marks)
What comes up: "Explain two benefits consumers may gain from having more commercial banks" — a 4-mark question, two points each developed once.
Write (two marks each): (1) More choice and competition (1) gives a greater range of, or better-quality, services and lower bank charges (1). (2) Lower interest charges on borrowing (1) because banks compete for customers, making loans cheaper (1). The mark scheme also credits easier access to credit and a higher interest rate paid to savers.
Watch out: Keep the benefit on the consumer side when that is what the question asks. A point about bank profits is not a consumer benefit unless you connect it to a better deal for customers.