Investment banking and commercial banking are the critical financial pillars of a modern economy. Offering unique services, investment banks help large corporations and institutional investors with mergers and acquisitions (M&A) or financing large-scale business projects. On the other hand, commercial banks serve the general public and businesses by accepting deposits, offering a commercial loan for business, and safeguarding assets. Read ahead to explore investment banking vs. commercial banking.
More About Investment Banking
Investment banking involves handling any financial work during large projects for corporations and investors. This can include offering financial capital, issuing securities, advising on stocks, and facilitating M&A transactions.
Notably, there are four types of investment banks, including bulge bracket (Goldman Sachs, Deutsche Bank, and Morgan Stanley), regional boutique (specialise in personal investment management and mergers and acquisitions), middle market, and elite boutique (offer asset management and restructuring services).
Besides, investment banks include banking analysts, research associates, capital market analysts, trading specialists, and others.
More About Commercial Banking
Commercial banking involves managing client (individuals and small- to medium-sized businesses) bank accounts and providing loans and financial advice. For commercial banks (like State Bank of India and HDFC Bank), interest on loans, service charges and transaction fees generate the profit. Notably, many commercial banks operate as local businesses in a town.
Usually, commercial banks have branch managers, loan officers, tellers, sales associates, technical programmers, and trust officers.
Investment Banking vs. Commercial Banking
When it comes to the investment banking vs. commercial banking debate, the key differences are related to products and services provided, the amount of money in transactions, the clientele served, and the regulations that must be followed. Let’s have a look!
| Investment Banking | Commercial Banking |
| Role: Help businesses make a profit from investments and secure funding for large-scale projects | Role: Facilitate daily financial transactions and provide advice |
| Clients: Large corporations, governments and institutional investors | Clients: The general public (consumers) and small- and medium-sized businesses |
| Products and Services: Wealth and asset management, M&A-related services, financial advisory and auditing, and security underwriting | Products and Services: Accept deposits, safeguard assets, make loans, manage bank accounts, provide credit cards, online banking, etc. |
| Revenue Generation: Make money on investment services provided like helping a company issue stocks in an initial public offering | Revenue Generation: Earnings through interest, fees, and other charges |
| Approach to Capital: Obtain capital for clients (find suitable investors to buy stocks and make capital for clients) | Approach to Capital: As commercial banks have funds in reserve, they can sanction loans for all types of purposes |
| Risk Involved: Volatile and involves high risk due to the nature of clients | Risk Involved: Low-risk model and government regulations make it safe |
| Salary: High-paying jobs | Salary: Not as high as investment banking jobs |
| Others: Competitive and often involves long working hours | Others: Better work-life balance |
Conclusion
For a modern society, both investment and commercial banks are vital. While investment banks offer fiscal services for larger enterprises and institutional investors, commercial banks cater to the everyday banking needs of consumers and small businesses. Also, both the banks make excellent career choices. But, additional skills are needed if you want to make a shift from commercial banking to the investment banking domain. Notably, investment bankers need to have a thorough understanding of spreadsheets and knowledge of building financial models.
If you want to work in an investment bank, then you need to have an undergraduate degree (not necessarily in finance) along with relevant work experience in the banking industry. Also, internship stints in large financial institutions and investment banks can help. Further, you can acquire relevant skills by pursuing a reputable course like Indian Institute of Management Calcutta’s Executive Programme in Investment Baking and Capital Markets. If you have any queries related to this course or investment banking careers, then you can reach out to Imarticus Learning.
