Question

1. What are four major differences between commercial and investment banks?

Answer 1

A commercial bank is a financial institution which performs the functions of accepting deposits from the general public and giving loans for investment with the aim of earning profit.

Investment banking is a special segment of banking operation that helps individuals or organisations raise capital and provide financial consultancy services to them.They act as intermediaries between security issuers and investors and help new firms to go public. They either buy all the available shares at a price estimated by their experts and resell them to public or sell shares on behalf of the issuer and take commission on each share.

The major difference between commercial bank and investment banks are -

Basis	Commercial bank	Investment bank
Service provided to	Commercial banks deal with normal general public.They accepts deposits from the general public and gives loans for investment purpose.	The deals with investors, corporations and government.They helps individuals or organisations raise capital and provide financial consultancy services to them.
Customer base	Millions. Commercial banks customer base is very high.	Few hundreds only.Customer base is low.
Income	Fees and interest income ( Difference between lending and deposit rates)	Fees, commissions or profit on trading activities.
Risk involved	Low risk	High risk
Services	Commercial banks handle basic financial transactions. They accepts deposits from the general public and gives loans for investment purpose.	Investment banks handle large amounts of money and advise their clients about sound investments.
Performance Measure	commercial banks are affected by credit demand and economic growth.	investment banks and their performance are tied to the performance of the stock market.

Hope it helps!