commercial and investment banks Flashcards
what are commercial banks ?
Commercial banks (also known as retail or high-street banks) are financial institutions that make profits by selling banking services to their customers
They serve the general public, both personal consumers and businesses
what are investment banks ?
Investment banks are global banks that assist in raising finance for companies, financial institutions, governments, and organisations
The Characteristics of Commercial & Investment Banks - services offered
commercial bank - Provide loans to individual consumers and businesses
Eg. mortgages
Provide safekeeping and returns for deposits / savings
investment bank -They issue shares and bonds
Provide advisory services for companies undergoing mergers or acquisitions
Financial advisory services to businesses
The Characteristics of Commercial & Investment Banks -examples of each
commercial banks - Barclays , lloyds HSBC
investments banks - J.P. Morgan
Morgan Stanley
Citigroup
The Characteristics of Commercial & Investment Banks - branch network
commercial banks - Extensive networks of branch banks in high streets and shopping centres
Numerous large commercial banks have opted to close a number of their physical branch locations due to rise of online banking
investment banks - Not dependent on branch networks; global presence
Historically, investment banks were situated within the square mile of the City of London
what may challenges may commercial banks experience trying to balance their objectives of ?
liquidity
security
profitability
Commercial banks face a challenge in trying to balance their objectives of - liquify
Banks want enough cash on hand that they can always meet withdrawal requests from their customers
This liquidity helps their customers not lose faith in the bank and prevents a run on the bank
Commercial banks face a challenge in trying to balance their objectives of - security
Banks need to ensure that any money they lend out is likely to be repaid
This means that the loan is secure
Banks will generally look for security from the borrower on larger loans, such as mortgages
Commercial banks face a challenge in trying to balance their objectives of - profitability
Banks also want to be able to earn as much interest on their loans as possible
Higher interest rates are usually charged on more risky loans
The bank has to balance their desire for profitability with their desired level of security
