Large firms and institutional investors can use investment banking services to assist with capital raising, mergers and acquisitions (M&A), debt restructuring, and other consulting services. Between issuers and investors of assets, such as stocks and bonds, investment banks function as a middleman. Trading, research, and asset management are other tasks carried out by investment banks.
Commercial banking refers to the provision of loans, deposits, payment processing, and other financial services to people, small and medium-sized enterprises, and other organizations. Commercial banks collect deposits from customers and utilize those funds to support loans and mortgages. Commercial banks also offer treasury, trade finance, and foreign exchange services.
The fundamental differences between investment banking and commercial banking are the clientele they serve and the jobs they execute. Investment banks serve major, publicly listed firms and institutional investors, whereas commercial banks serve smaller, private consumers and enterprises. Investment banks generate money through fees and commissions for their consulting and underwriting services, whereas commercial banks make money from interest on their loans and deposits.
Depending on their size, scope, and services, commercial banks and investment banks come in several varieties.
Investment banks are generally classified into four categories:
Bulge bracket banks: These are the biggest and most prominent investment banks, with a wide variety of financial services available and a global presence. Its customers, who include governments and global organizations, manage the largest and most complicated negotiations. Goldman Sachs, Morgan Stanley, JPMorgan Chase, and Bank of America Merrill Lynch are a few examples of bulge bracket banks.
Elite boutique banks: These are less substantial than bulge bracket banks, but they maintain a high level of credibility and are experts in particular fields, such as M&A, restructuring, or leveraged financing. When it comes to big transactions and luring top people, they frequently compete with bulge bracket banks. Lazard, Evercore, Moelis & Company, and Centre View Partners are a few instances of prestigious boutique banks.
Smaller than elitist boutique banks, middle-market banks concentrate on serving clients with assets between $5 million and $500 million. Although they provide a variety of financial services, smaller banks could have a wider worldwide reach or more in-depth knowledge. Middle-market banks include Piper Sandler, Houlihan Lokey, William Blair, and Stifle, to name a few.
The smallest investment banks, known as regional boutique banks, focus on certain markets or areas. They may offer fewer services than larger banks and may focus on particular markets or goods. Brown Gibbons Lang & Company, Harris Williams & Co., and Lincoln International are a few instances of local boutique banks.
Commercial banks are generally classified into three categories:
Large commercial banks: These are banks with a large customer base and a presence on a national or worldwide scale. Both their consumer base and market share are considerable. Large commercial banks include Wells Fargo, Citigroup, Bank of America, and HSBC.
Despite being smaller than big commercial banks, regional banks offer the same services. In certain states or localities, they are still extremely common. They provide financial services and goods on par with those provided by major commercial banks. Fifth Third Bank, PNC, U.S. Bank, and SunTrust Bank are examples of regional commercial banks.
The smallest commercial banks are those that are located in particular villages or neighborhoods. They concentrate on providing personalized service and retaining customers while providing small companies and individuals with basic banking products and services. Examples of community commercial banks are First National Bank Alaska, Bank of Marin, First Republic Bank, and Signature Bank.
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