{"id":3679,"date":"2023-05-04T11:30:00","date_gmt":"2023-05-04T15:30:00","guid":{"rendered":"https:\/\/theforage.wpengine.com\/?p=3679"},"modified":"2024-09-04T17:07:52","modified_gmt":"2024-09-04T21:07:52","slug":"commercial-banking-vs-investment-banking","status":"publish","type":"post","link":"https:\/\/theforage.wpengine.com\/careers\/commercial-banking-vs-investment-banking","title":{"rendered":"Commercial Banking vs. Investment Banking"},"content":{"rendered":"\n

Both commercial and investment banks offer financial services<\/a> and products to businesses, corporations, government organizations, and institutions rather than individuals or families. One primary difference between commercial banking vs. investment banking is that investment banks typically raise money by selling securities (like stocks and bonds). On the other hand, commercial banks use consumer deposits to fund loans and mortgages, and the interest on those loans becomes profit for the bank. Ultimately, there’s considerable overlap between these two types of financial institutions.  <\/p>\n\n\n\n

Commercial Banking Definition<\/h2>\n\n\n\n

Commercial banking<\/a> involves a range of financial services and products for businesses, governments, and institutions. Large commercial banks often have several subsidiaries or subdivisions, each with specialized products and services. For example, investment banking is sometimes a subdivision of commercial banking \u2014 JPMorgan Chase<\/a> offers commercial banking under the Chase Bank name but investment banking under JPMorgan. Retail banking<\/a> is also a common subdivision of commercial banking. <\/p>\n\n\n\n

A key function of commercial banks is to provide a place for businesses and institutions to store money in checking and savings accounts. <\/p>\n\n\n\n

“Banks also offer cash management services to businesses, helping them to manage their cash flow and optimize their financial operations,” adds Sanat Patel, co-founder and chief lending officer at AVANA Companies.<\/p>\n\n\n\n

Businesses also use commercial banks for loans and lines of credit. For instance, companies can often access “commercial and industrial lending, commercial real estate, equipment loans, leases, business credit cards, and merchant credit card processing for point of sale transactions” at commercial banks, says Patel.
Some larger commercial banks also have financial planning divisions, which can involve portfolio management<\/a>, asset management<\/a>, and personal finance assistance. These financial advisory and investment services sometimes cross over with investment banking functions.<\/p>\n\n\n\n

Investment Banking Definition<\/h2>\n\n\n\n

Many of the largest banking institutions have investment banking<\/a> subsidiaries or subdivisions, and most of the top investment banking companies<\/a> are interconnected to commercial and retail banks. For example, Citi<\/a> has investment banking operations under Citigroup Global Markets, Inc. and retail banking under Citibank. <\/p>\n\n\n\n

While commercial banks make profits by collecting interest on loans, investment banks “usually rely on selling financial products (such as stocks<\/a> and bonds) through underwriting<\/a>,” says Robert R. Johnson, professor, Heider College of Business, Creighton University.<\/p>\n\n\n\n

Underwriting is a core activity at investment banks and ultimately boils down to risk evaluation: When a bank offers a mortgage to a customer, it assumes a risk that the customer may not repay it. In investment banking, underwriting involves the bank taking on the risk of purchasing a stock or bond and finding a buyer. If the stock or bond doesn’t sell, the bank loses money. <\/p>\n\n\n\n

Investment banks also have a wide range of functions beyond underwriting, including: <\/p>\n\n\n\n