What is Investment Banking and How it is Different from Commercial Banking?

What is Investment Banking and How it is Different from Commercial Banking

The concept of banking has several uses. One of them refers to the set of banks and bankers. The bank, therefore, can refer to the entities that are dedicated to facilitate financing. You can also take help from any financial expert like Mark Attanasio Toronto and Donato Sferra Toronto who has helped many business owners are working as Financial Services Executive in Toronto.

Investment:

  • On the other hand, is an economic concept linked to the placement of capital to achieve a future profit? This means that the investor resigns an immediate benefit for a future that is unlikely but that, in principle, should be greater than the current one. The investment includes three main variables: the expected return, the risk and the time.
  • It is known as investment banking or business banking entities that specialize in obtaining money or other financial resources so that private companies or governments can make investments. These financial instruments are obtained by the investment banking through the issuance and commercialization of securities in the capital markets.
  • It is common for investment banks to also offer consulting services for the development of acquisitions, mergers or divisions.
  • The regulations for the operation of investment banking vary by country. In general, the authorities usually grant special licenses for this type of bank, without being able to operate simultaneously as commercial banks. Investment banking, therefore, cannot capture deposits.

Differences with Commercial Banking:

  • Commercial banking and investment banking present many more differences than are generally perceived; it is about two well defined business types.
  • With regard to the image, commercial banking is mainly perceived by the general public, since it has a large number of branches, available to everyone. The business that characterizes it is the payment for the deposits of its clients and the collection for the credits that it grants them, having like main objective that the difference between these payments is always positive. On the other hand, it is also dedicated to granting credit cards and to carry out operations such as the processing of guarantees, transfers, and intermediation in the stock market, pension plans and investment funds.
  • Among the activities of the investment bank is the sale of complete divisions among companies, the issuance of bonds, mergers, taking out companies on the Stock Exchange.
  • It should be mentioned that, unlike the previous one, it does not have many small branches, but with a few of considerable dimensions.
  • The benefits are also a point that distinguishes them. Those of the commercial bank present a great stability, since very rarely it enters losses. For the commercial banks of a given country to lose money in the majority of their operations, it is necessary that this territory is in a crisis of absolute emergency.
  • Investment banking, on the other hand, has much less stable benefits. To make this difference in perspective, during the good times of the economy, their earnings are much greater than those of commercial banks, but this situation is reversed considerably in times of slowdown, to the point of causing sharp falls and losses. The latter, it should be noted, is not an indication of the overall economic health of a country, but is normal phenomena throughout the life cycle of investment banking.
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