section_path: Types/Commercial bank
section_name: Commercial bank
paragraph_text: Commercial bank
  
  Commercial bank money or demand deposits are claims against financial institutions that can be used for the purchase of goods and services. A demand deposit account is an account from which funds can be withdrawn at any time by check or cash withdrawal without giving the bank or financial institution any prior notice. Banks have the legal obligation to return funds held in demand deposits immediately upon demand (or 'at call'). Demand deposit withdrawals can be performed in person, via checks or bank drafts, using automatic teller machines (ATMs), or through online banking.
  
  Commercial bank money is created by commercial banks whose reserves (held as cash and other highly liquid assets) typically constitute only a fraction of their deposits, while the banks maintain an obligation to redeem all these deposits upon demand - a practise known as fractional-reserve banking. Commercial bank money differs from commodity and fiat money in two ways: firstly it is non-physical, as its existence is only reflected in the account ledgers of banks and other financial institutions, and secondly, there is some element of risk that the claim will not be fulfilled if the financial institution becomes insolvent.
  
  The money multiplier theory presents the process of creating commercial bank money as a multiple (greater than 1) of the amount of base money created by the country's central bank, the multiple itself being a function of the legal regulation of banks imposed by financial regulators (e.g., potential reserve requirements) beside the business policies of commercial banks and the preferences of households - factors which the central bank can influence, but not control completely. Contemporary central banks generally do not control the creation of money, nor do they try to, though their interest rate-setting monetary policies naturally affect the amount of loans and deposits that commercial banks create.