The different types of banks. Commercial banks and investment banks
Category: General Banking
Commercial banks and investment banks
1. Commercial Banks
These are usually large or medium sized banks, including a network of branches covering all or part of the national territory; most of them have an international activity through subsidiaries or representative offices.
Their activities are mainly granting credits to firms of any size, credits to individuals, collecting savings, managing current accounts and means of payment. Their network of branches enables them to attract all types of customers. The structure of their balance sheet is mostly made of operations with their customers; they are either borrowers or lenders on the interbank market. Their shareholders can be Insurance companies, trust funds, the State or the Public through the stock exchange.
2.Investment Banks
These small or medium sized Banks had as their main activity the financing of large investment projects or the buying up of shares in commercial and industrial firms.
To day their activities are more oriented towards Market operations and Financial Engineering: they are brokers in interbank, Foreign Exchange, Futures Markets and on the stock exchange. They are usually borrowers of capital in the interbank market.
Their markets
1. Financial companies
Different from commercial Banks that operate any products and services, some banks are more specialised. So called «No bank banks» in the USA, they are institutions dedicated to credit activities; usually created by industrial or commercial groups; they finance either their own group or the customers of the group; car credit institutions can be subsidiaries of car manufacturers; consumer credit institutions can be subsidiaries of Banks.
These institutions cannot collect deposits and are structurally borrowers on the interbank markets.
2. Specialised Financial Institutions
The mission of these institutions is «public interest»; these activities are very diversified:
— institutions for medium and long term loans or capital funding
— institutions for financing the property market
— institutions for financing the local and regional authorities
— brokers and securities institutions to give access to the markets to their customers.
Status
According to Government policy, banks can be state owned or public.
Most banks are public companies but some of them have a different status:
co-operative Banks: they only exist in Northern Europe, Germany and France — their activity is the same as commercial banks’, but shareholders have a different status: every customer is a shareholder, but none of them have enough shares to influence upon the Management of the Bank.
Savings Banks are banks which have a large network of branches, the customers of which are mostly private people. They collect large amounts of savings and grant mortgages and consumer loans to private customers. They are lenders on the interbank market.
Organisation
A difference has to be made between banks with a national and an international network and banks operating from head office.
This difference comes from their activities that demand to be close to clients. Commercial banks need such a network.