What is Investment Banking? How it is distinguished from commercial banking?

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Investment banking is a type of Banking whose main purpose is to create capital for other companies, entities, and governments.

It helps individuals and organizations in raising capital and providing financial support. It acts as an intermediary between huge and complex transactions.

It also acts as a financial adviser for large institutional clients. Investment banks arrange debt finances for corporations by finding large-scale investors for corporate bonds.

It is a very special segment of banking as it provides many financial facilities. Investment Banks make a large amount of money by buying assets, and they also do pooling and tranching of that asset and after that, they sell that asset at a much higher price.

JPMorgan Chase, Goldman Sachs, Credit Suisse, etc.

Indian Investment Banks include HDFC Bank limited, BNP Paribas, ICICI Bank, State Bank of India, Standard Chartered, and many more.


What is Commercial Banking?

Commercial Banking is a type of banking in which commercial banks are the financial institutions whose purpose is to accept deposits, make various loans, offer to check account services,s and provide basic financial products.

It provides financial products like Certificates of deposit (CDs) and provides saving accounts to small businesses and individuals. Commercial Banks ensure the financial stability and growth of the economy.

There are three types of Commercial Banks:-

  1.  Public Sector Banks
  2. Private Sector Banks
  3. Foreign Banks

The main objective of the commercial bank is to provide financial services and loans to common people. It also helps in the growth and development of Small businesses by providing loan facilities.

Some commercial Banks are

  1.  Bank of India
  2. Bank of Baroda
  3. Punjab National Bank
  4. State Bank of India


How Investment Banking is Different from Commercial Banking?

Commercial Banking system is used by common people for getting loans and depositing their savings and Withdrawals when required whereas the Investment Banking system is used by investors for raising capital.

In Investment banking risk factors are very much high whereas in the Commercial banking system risk factor is low.

Commercial Banks are used by individuals and mid to small size companies whereas Investment Banks are used by big companies and start-ups.

 The main purpose of the Investment Banks is to provide large institutions and investors whereas the main purpose of the commercial banks is to provide loans, credit, and debit deposits and to ensure the safety of the assets.

The main clients of the Commercial Banks are the general public and companies whereas the main clients of Investment banks are big investors and financial institutions.

Commercial Banks accept fixed deposits whereas Investment Banks don’t accept deposits.

Investment Banks provide a very high salary to individuals and the duty is comparatively competitive whereas in Commercial banking individuals get a work-life balance but get a low salary as compared to Investment Banks.

Positions in Investment Banks include capital marketing analyst, banking analyst, trading specialist, research associate, and many more. Whereas in Commercial Banks auditors, data processing officers, loan officers, Branch managers, and internal auditors.

In Investment Banks employees have long working hours and sometimes it becomes difficult for them to maintain a balance between their professional and personal life whereas in Commercial Banks employees are able to get a work-life balance.


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