Question

1. Explain FIVE functional differences between commercial and commercial banks investment bank.

Answer 1

The main differences between a commercial bank and investment banks are as follows. 1)On the basis of business or work i.e., commercial banks provide banking and financial services to the public at large by accepting deposits and lending money whereas investment banks are set up only for the purpose of investment they act like mediators between buyers and sellers and helps to raise capital for the business. 2)on the basis of functions performed investment banks issues stocks,bonds, securities and certificates of deposits , underwriting services ,asset management,wealth management, mergers and acquisitions also deals in IPO'S and various advisory and consulting services that is to say theyothey provide customer specific service whereas commercial banks provide standard services to all customers such as overdraft, cash credit, collection of bills and promissory notes, credit card debit card facilities etc. 3)on the basis of sources of income commercial banks earns or generates income by lending money at higher rate and accepting deposits at lower rate of interest so the difference between lending and borrowing rates constitutes their main source of income whereas investment banks earns income by way of fees or commission by rendering services (as stated in above supra) to the their clients. 4) on the basis of risk factor commercial banks are less risky when compared to investment banks due to the nature of business operations since commercial banks are regulated by the banking Act and they abide by the same but investment banks are regulated by SEBI (securities exchange board of India) i.e., capital market regulators. 5)on the basis of clients or customers basically commercial banks serve individuals and have large customer base but investment banks have narrow customer base and they deal with large corporations, governments ( including both state and central) and also corporate firms etc.