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EXPLORING 21st CENTURY SKILLS AND ISSUES
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Investment Banks vs. Commercial Banks There are two kinds of banks: commercial banks and investment banks . Both are important to commerce and the economy, but provide very different services and products . To be 21st century financially literate, you should know the difference between them, and be familiar with the important law that keeps them separated. Let’s explore. Read the passages below, then get the confused customer to the right bank for their needs. Commercial Banks
Commercial banks have both retail and business divisions . The retail division is also called consumer banking . You are probably most familiar with the retail division of a commercial bank. It has branches with ATMs, tellers, and drive thru windows. You can walk into a retail branch to cash or deposit a check, open an account, rent a safe deposit box, apply for a credit card, home loan, or car loan. The business banking division serves local businesses with checking accounts and loans for all sorts of things such as large real estate development projects, agricultural equipment leases or purchases, and provides business services such as payroll management, and insurance. The business banking division is often located in an office building near a retail branch. Commercial banks are supervised by the Federal Reserve Bank. Some commercial banks you might know are Bank of America, Wells Fargo, and HSBC. These have both business and retail/consumer divisions. Investment Banks Investment banks are a completely different animal. You can’t walk into an investment bank and make a deposit or use an ATM. It has no branches. It has posh upscale offices located in major cities. Its customers are companies involved in or seeking advice regarding large and very complex financial transactions . An investment bank is what is called a financial intermediary . They’re kind of corporate matchmakers, bringing companies together in mergers and acquisitions (M&A) . It assists companies in attracting investors, and raising money for expansion. It may also manage money for a large corporate client, such as a retirement fund. When corporations want to transform from being privately to publicly owned (something you will learn about later in this course) an investment bank acts as underwriter , meaning it finances, supervises and accepts the risk of loss on the transaction. If you want to be an investment banker, you can expect to work long hours, including weekends, and be very well paid. Some investment banks you may have heard of are Goldman Sachs, Morgan Stanley, and Credit Suisse.
PRODUCT PREVIEW
Commercial banks have retail and business divisions.
Photo: Jarred Trost , Wikimedia Commons Investment banks are financial intermediaries.
105 THE 21st CENTURY STUDENT’S GUIDE TO FINANCIAL LITERACY
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