An Investigation Into the Differences Between Retail and Investment Banks Essay

Over the past decades, retail banks have remained the main commercial bank for consumers, rather than corporations or other banks. The investment bank has become more popular amongst individuals, corporations and governments which are interested in raising their profits. Retail banks and investment banks have different organizational structures and activities. So they have many differences, such as services, customers and profits. And this report aims to distinguish between the retail bank and the investment bank in order to identify their specific service areas. Firstly, the author will review some literature focusing on the definitions. Secondly, the author will illustrate the differences between them from their target activities and functions. Retail banks offer a range of services to individual customers and small businesses, rather than to large companies and other banks. These include: savings and transactional accounts, mortgages, personal loans, debit cards and credit cards. An investment bank is a bank which specializes in providing funds to corporate borrowers for startup or expansion and does not accept deposits but provides services to those who offer securities to investors, and to those investors themselves. It may also assist and support companies which are involved in mergers and acquisitions, and provides ancillary services such as market making, trading of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities. From the definitions above, it clearly shows that the two types of bank provide substantially different services to customers. As a normal customer, I think the retail banks are better than the investment banks. And there are three advantages of the retail banks. Firstly, the retail banks have more branches than the investment banks. For example, Lloyds TSB Bank is a retail bank in the United Kingdom, and according to Lloyds TSB website, the bank has nearly 1,900 branches across the UK. This means that you can find the branches of TSB almost everywhere. So you can deal with some normal business easily, the branches of retail banks can be found almost everywhere. For example, you want to make emergency loans, you do not have enough time to find an investment bank to make loans, so you must choose the retail banks. Moreover, the retail banks can supply some services which the investment banks do not provide. When you want to transfer from one account to another account, you can not go to the investment banks, because the investment banks do not offer this kind of service. Therefore, if you want to deal with some normal business (such as savings, mortgages and credit cards) at a bank, it would be better to choose the retail banks. The Royal Bank of Scotland is one of the retail banking is part of the Royal Bank of Scotland Group, and together with NatWest and Ulster Bank, provides branch banking facilities throughout the UK. And it can provide almost every service that the retail banks have. So it has a good reputation in Scotland. Finally, the risk of retail banks is relatively lower than the investment banks. You can get money from the rate of interest which can be higher than the other banks. Such as Barclays Corporate which belongs to the Barclays Group and provide these kinds of services (such as savings, transactional accounts, mortgages, debit cards, credit cards). It offers a service called monthly savings which is its regular savings plan that allows you to save regularly over 12 months, and you can get higher interest rates are paid where no withdrawals have been made in the previous month. This means that you can get high fixed interest of up to 3. 25% AER / 3. 20% in months when no withdrawals are made. And the revenue of the retail banks is stability and fixed. So you do not need to pay more attention to the asset in the retail banks. These advantages of the retail banks are the reasons why the retail banks are better as a normal customer. As an advanced person or a company, I think the investment banks are better. There are also many advantages of the investment banks which usually provide services for the company. First of all, most of the investment banks are global company and it can provide services more widely than the retail banks. Such as Morgan Stanley is a leading global financial services firm providing a wide range of investment banking, securities, investment management and wealth management It reports US$779 billion as assets under its management. Its headquarter located in Midtown Manhattan , New York City. It has companies in 37 countries with over 1,200 offices, employees dedicated to local businesses, government agencies, institutions and individuals. So the investment banks can provide the services (such as trading of derivatives, fixed income instruments, foreign exchange and commodities) all over the world. Secondly, the revenue of the investment banks significantly more than profit of other types of banks. If you save your extra money in the retail banks, you can only get the interest from the rates. But if you sand your money to the investment banks you can get remarkable returns although it has a high risk. For example the Goldman Sachs Group, Inc. is an American investment bank and securities. And it provides mergers and acquisitions advice, underwriting services, asset management, and prime brokerage to its clients, which include corporations, governments and individuals. Amazingly, the company in US profits reached a record $ 13. 39 billion in 2010, on average common shareholders’ equity rate of return is 22. 5%. At last, the investment banks also can provide some special services that the retail banks do not offer. For instance, it can supply a particularly serving called â€Å"financial advice† what can make financial of a company more reasonability and determine the future line of development. UBS AG is a diversified global financial services company, with its main headquarters in Basel and Zurich, Switzerland and UBS is present in all major financial centers worldwide. With â€Å"Premier Advisory Services†, UBS offers you the opportunity to schedule individual one-on-one consultations with CEFS experts who understand your equity-linked compensation as an integrative part of your total wealth management, know about the different plan vehicles and can support you on issues such as â€Å"How can I best align my equity-linked compensation with my total wealth management† or â€Å"When should I exercise, which strategy is the best†.