What Is a Commercial Bank?
Commercial banks are what most people think of when they hear the word "bank." They lend money, accept deposits, offer checks and savings accounts and offer a variety of other financial products. Even though the word "commercial" makes it sound like they deal only with or primarily with businesses, this is not the case. Commercial banks provide banking services to both individuals and companies or enterprises.
What is Investment Bank?
Investment bank is a type of bank that acts as an intermediary that undertakes large and complex financial transactions on behalf of other companies or government. Such financial transactions include underwriting/ issuing house for securities, issuing companies and investors, facilitating merger of 2 competitors, as financial advisory and brokerage. Investment bank also handles pension funds.
Similarities between Commercial Banks and Investment Banks
They give financial, technical, and management advice to their customers in matters relating to investment. They advise their business customers on how best they can carry out their business operations. They advise investors on the various ways of raising finance for investment purposes. The managers of businesses who are customers to a bank, can get management advice. While commercial banks provide financial, consultancy and advisory services to both individual natural persons and corporate bodies, investment banks provide such services to firms as relating to corporate and investment matters.
Market Research
Corporations consult these banks to conduct market research on their behalf that shows the operations of the market, market trends and the pointers to the best approach any can take.
Mobilisation of Fund
Both commercial and investment banks take deposits from any natural or legal person. While commercial banks has no minimum of amount to accept as deposits, investment banks have specified minimum deposit to take as may be prescribed by central bank or any other regulating body.
Provision of Credit Facilities
Both banks provide credit facilities to their customers. While commercial banks may provide loans to all customers, investment banks provide finance and credit facilities to non-retail customers
Foreign Exchange Services
These banks deal in foreign exchange and provide foreign exchange services to their customers.
Treasury Management
Providing treasury management services including money market, fixed income and foreign exchange investment on behalf of clients.
Risk Management
Commercial Banks and investment banks undertake risk management of their clients investments. Risk management is a continuous process that includes the analysis of market risk and credit risk taken by an investment bank or commercial bank, or their clients to their balance sheets during a transaction. This helps to set limits on the amount of capital that can be traded to prevent the negative effects of bad trades. Credit risk focuses on capital market activity and market risk, analyzes sales and trading activity.
Asset Management
Providing asset management services, including fund and portfolio management services, act as a dealer of securities for their own accounts, and for clients, or otherwise make or manage investments on behalf of clients.
Both investment and commercial banks have the mandate of keeping track of the financial progress of their clients maintaining the significance of the processes and ensuring they comply with government regulations such as taxation. Both banks maintain taxation and yearly transactions that their clients have in the company. These records prove that the operations are genuine and their representation in tandem with the government regulations to their activities
Providing debt factoring services.
Read also: Similarities, Difference between Central Bank and Commercial Banks