Glossary 25: Understanding key differences between Investment banking and Commercial banking
The banking industry plays a crucial role in the global economy, but not all banking services are the same way. Two primary types of banking services—investment banking and commercial banking—serve different purposes and cater to distinct client needs. Understanding their roles can help professionals and investors navigate the financial landscape more effectively.
Commercial Banking: Everyday Financial Services
Commercial banks focus on traditional banking services for individuals, businesses, and institutions. They accept deposits, provide loans, issue credit cards, and offer basic financial products like savings accounts and mortgages. These banks act as intermediaries, using customer deposits to lend money, helping businesses grow and individuals finance purchases. Commercial banks earn money through interest on loans and transaction fees. Global commercial banks include JPMorgan Chase, Wells Fargo, and HSBC while well-known local commercial banks in Vietnam are VCB, BIDV, ACB, VIB.
Investment Banking: Facilitating Capital and Financial Transactions
Investment banking firms, on the other hand, specialize in capital markets and complex financial transactions. They assist companies, governments, and institutional investors in raising capital through stock or bond issuances, mergers and acquisitions, and advisory services. Investment banking firms also engage in trading and asset management, offering sophisticated financial solutions. Investment banking firms generate revenue from advisory services, underwriting deals, and trading commissions. Leading global investment bank firms include Goldman Sachs, Morgan Stanley, and Citigroup. In Vietnam, investment banking services are provided by securities companies and financial services firms.
Both types of banks are essential to a functioning economy. Whether you’re a business owner seeking financing or an investor exploring capital markets, understanding these distinctions can help you make informed financial decisions. Further discussion on the activities of Investment Banks are provided in our Course Private Equity – Investment Banking for Dealmakers.
