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Difference between the Investment Bank and the Commercial Bank

diciembre 2, 2019

Based on the work done by the banks, the financial industry is divided into two main segments, namely the investment bank and the commercial bank. Commercial banks are established for the purpose of concluding business transactions, legally taking deposits and lending money to clients as individuals and companies.

On the other hand, investment banks are established to offer services to investors. The operations of investment banks are different and act as intermediaries between buyers and sellers of shares and bonds, which help clients to raise capital.

While an investment bank earns subscription fees, the commercial bank earns interest on the loans provided to customers. There is a subtle line of difference between the investment bank and the commercial bank, which is presented in this article in detail.

Comparative graph

Basis for comparisonBank investmentBank commercial
SenseThe investment bank refers to a financial institution that offers services such as the underwriting of securities, brokerage services and so on.The commercial bank is a bank that provides services such as accepting deposits, lending money, paying for the standing order and many others.
offersCustomer specific serviceStandardized service
Associated withFinancial market performance.The nation's economic growth and the demand for credit
Customer baseOnly a few hundredmillions
Banker aIndividuals, government and corporations.All citizens
IncomeCommissions, commissions or profit on commercial activities.Commissions and interest income

Definition of the Investment Bank

The term investment bank is used to define a financial institution that performs complex financial transactions. These banks connect large companies with investors. Banks serve their customers in various ways, such as assisting the government and companies in issuing securities, helping investors to buy stocks, bonds, etc. Providing consulting services and so on.

Banks generate their income by charging commissions for their consulting services. Furthermore, the commercial activity of the bank is subject to profits or losses. These banks play a crucial role in helping companies or the government make well-planned decisions and raise funds easily. The services provided by an investment bank are shown below:

  • Subscription of securities
  • Capital raising
  • Resource management
  • Wealth management
  • Consultancy services
  • Merger and acquisitions
  • Assist companies in the creation of an initial public offering (IPO)

Definition of commercial bank

The term commercial bank refers to a plant that deals with providing banking and financial services to the public as a whole. In the past, there was no such institution where people can deposit their money safely or take loans. So they went from money sharks to borrow funds and deposited their money in post offices. Later, banks are being developed that function as a banker for all citizens of the country.

Commercial banks are public or private property or the combination of the two. Banks help in saving mobilizations throughout the economy. regulated by the law on banking regulation of India, 1949.

Banks accept deposits from citizens of the country at a nominal interest rate and use these funds to extend credit to other customers (borrowers), charging them a higher interest rate. In this way, commercial banks derive their income from the amount of remaining interest. In addition to this, one of the bank's main sources of income are the fees charged by these to offer various services to the public. The wide range of services provided by commercial banks are:

  • Accepting deposits
  • Advance loans
  • Overdraft and cash credit account
  • Payment on permanent instructions
  • Withdrawal of money on request
  • Collection of effects and bills of exchange
  • Trading of shares and bonds on behalf of the client
  • Cabinet installation
  • ATM, debit card, credit card
  • Banking services for smarthpone
  • Online banking

Key differences between the Investment Bank and the Commercial Bank

The fundamental difference between investment bank and commercial bank indicated below:

  1. A financial intermediary established to provide investment services and consultancy to companies known as an investment bank. Commercial Bank a bank set up to provide banking services to the general public.
  2. The investment bank offers a customer-specific service, while the commercial bank offers standardized services.
  3. The customer base of a relatively higher commercial bank than an investment bank.
  4. The investment bank linked to the performance of the stock market, while economic growth and credit demand affect the interest rate applied by the commercial bank.
  5. The investment bank is a banker for the individual, the government, the companies, etc. On the other hand, the commercial bank is a banker for all citizens of the country.
  6. The investment bank generates its income from commissions and commissions. Unlike the Commercial Bank, which generates interest income and commissions.

Conclusion

The main difference between these two financial intermediaries is the target audience and their area of ​​activity. While commercial banks serve all the citizens of the country and its main activity to accept deposits and grant loans. Investment banks deal in securities and therefore its main activity is to negotiate financial activities and provide consultancy services.

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