Why are commercial banks essential to the US financial system?

Commercial banks play a fundamental role in the US financial system primarily because they account for a large percentage of deposits and lending. This is significant because banks are the main institutions that gather deposits from individuals and businesses, which are then used to provide loans for various purposes, including mortgages, business financing, and personal loans.

By facilitating these transactions, commercial banks help to create liquidity in the economy, enabling consumers and businesses to spend and invest. This, in turn, drives economic growth. The acceptance of deposits from a wide range of customers and the provision of credit to various sectors allows these banks to effectively mobilize resources, supporting both short-term and long-term economic activities. Their ability to manage and mitigate risk through underwriting procedures and interest rate adjustments further strengthens the overall financial system.

In contrast, the other options highlight characteristics that do not capture the primary role or function of commercial banks in the broader system. They are not limited to just investment services, savings accounts, or being government-operated; instead, they encompass a diverse range of financial services that solidify their essential status in the economic framework.