Investment Banks vs. Commercial Banks Flashcards
what is commercial bank?
- a bank that collects money from depositors and issues loans
- AKA retail banks
- e.g., barclays, JPM Chase, HSBC
how do commercial banks make money?
by ensuring their interest income exceeds their interest expenses to depositors
how do investment banks differ from commercial banks?
they don’t accept deposits
what do investment banks do?
they are essentially financial brokers
they help companies raise capital either via debt/equity
they conduct due diligence on behalf of their client, calculate the valuation and go through the processes
they give advice on mergers and acquisitions to help negotiate prices
two ways investment banks help companies raise capital
via equity issuances (e.g., IPOs)
via debt (e.g., bank loan)
equity dilution?
to reduce the magnitude of ownership one has in a company
how do investment banks make money?
commissions from closing deals
