Similarities Between Commercial Banks and Investment Banks

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Commercial and investment banks are two different types of banks, but they have some similarities in the services the both offer. One of the major things that make commercial banks and investment banks similar is that they both offer financial and investment services. Every customer that approaches any of these banks wants to create wealth by making investments.

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

Financial and Investment Advisory

They give financial, technical, and management advice to their customers in matter 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 banks take deposits taking 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.

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 its own account, 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

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