Difference Between Investment Bank and Commercial Bank

Based on the work performed by the banks, the financial industry is bifurcated into two major segments i.e. investment bank and commercial bank. While the former, is set up for the purpose of concluding commercial transactions, the latter is established to offer services to investors. People often get confused between these two banks and use them interchangeably. There exists a thin line of difference between investment bank and commercial bank, which is presented in this article in detail. Have a look.


Difference Between Investment Bank and Commercial Bank

the work performed by the banks, the financial industry is bifurcated into two major segments i.e. investment bank and commercial bank. While the former, is set up for the purpose of concluding commercial transactions, the latter is established to offer services to investors. People often get confused between these two banks and use them interchangeably. There exists a thin line of difference between investment bank and commercial bank, which is presented in this article in detail. Have a look.


Comparison Chart

BASIS FOR COMPARISON INVESTMENT BANK COMMERCIAL BANK
Meaning Investment bank refers to a financial institution, that offers services like underwriting of securities, brokerage services and so on. Commercial bank is a bank that provides services like accepting deposits, lending money, payment on standing order and many more.
Offers Customer specific service Standardized service
Associated with Performance of financial market. Nation's economic growth and demand for credit
Customer base Few hundreds only Millions
Banker to Individuals, government and corporations. All citizens
Income Fees, commissions or profit on trading activities. Fees and interest income


Definition of Investment Bank

The term investment bank is used to define a financial institution that performs intricate financial transactions. These banks links the big corporations with the investors. The banks serve its customers in a number of ways like assisting government and corporations in issuing securities, helping the investors in buying stocks, bonds, etc. providing advisory services and so on.

The banks generate its income by charging fees for its advisory services. Further, the bank’s trading business is subject to profit or loss. These banks play a crucial role in aiding companies or government to take well planned decisions and raise funds easily. The services provided by an investment bank are given as under:

Underwriting of securities
Raising of capital
Asset management
Wealth management
Advisory services
Merger and Acquisitions
Assisting companies in making an Initial Public Offer (IPO)
Definition of Commercial Bank

The term commercial bank refers to an establishment which is engaged in providing banking and financial services to the public at large. In earlier times, there was no such institution where people can deposit their money safely or take loans. So they used to go to money sharks to borrow funds and they deposit their money in the post offices. Later on, banks are being developed that works as a banker to all the citizens of the country.

Commercial banks are owned publicly or privately or by the combination of the two. The banks help in the mobilizations of savings across the economy. It is governed by the Banking Regulation Act of India, 1949.

The banks accept deposits from the citizens of the country at a nominal interest rate and use that money in extending credit to other customers (borrowers), charging a higher rate of interest from them. In this way, commercial banks makes its income from the left over amount of interest. In addition to this, one of the major source of bank’s income is the fees charged by them for offering various services to the public. The diverse range of services provided by the commercial banks are:

Accepting deposits
Advancing loans
Overdraft and cash credit facility
Payment on standing instructions
Withdrawal of money on demand
Collection of bills and promissory notes
Trading in shares and debentures on behalf of customer
Locker facility
ATM card, Debit Card, Credit Card facility
Mobile banking
Internet banking

Key Differences Between Investment Bank and Commercial Bank

The basic difference between investment bank and commercial bank are indicated below:

A financial intermediary set up to provide investment and advisory services to the companies, is known as an investment bank. Commercial Bank is a bank established to provide banking services to the general public.
Investment bank offers customer specific service whereas commercial bank offers standardized services.
The customer base of a commercial bank is comparatively higher than an investment bank.
The investment bank is related to the performance of the stock market while economic growth and the credit demand affect the rate of interest charged by the commercial bank.
The investment bank is a banker to individual, government, corporations, etc. On the other hand, commercial bank is a banker to all the citizens of the country.
The investment bank generates its income from fees and commission. Unlike Commercial bank, which generates income from interest and fees.

Conclusion

The basic difference between these two financial intermediaries is the audience they cater to as well as their area of business. While commercial banks serve all the citizens of the country and its main business is to accept deposits and grant loans. Investment banks deals in securities and so its primary activity is to trade in financial assets and provide advisory services.

Investment bank and commercial bank are both actors in the Nigerian financial system, they perform the functions of financial intermediaries...

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There is a thin line of difference between investment banks and commercial banks. Investment bank deals with large businesses or corporations and commercial bank deals with small businesses. But the https://prifinance.com/en/ provide the private finance and it also deals with both type of businesses. This company also deals with offshore bank accounts, reliable foreign banks, abroad company registration, companies purchase, license for brokerage companies.