Difference Between Retail Banking And Investment Banking

Retail banking is one dedicated to carrying out operations for savers, private investors, and small and medium-sized companies. On the contrary, wholesale banking is one specialized in large-scale operations, generally of companies and organizations of great size or importance.

Operate separately:
The main difference between both banks is that each one is specialized in a different type of client but it is not the only one, let's see in detail what other aspects differentiate them.The business model describes the rationale for how an organization creates, delivers, and captures value in social, cultural, etc. contexts. The process of building a business model is part of a business strategy.

More about retail banking:

 
Originate to maintain:
In retail banking, financial institutions manage the risks generated in their relationship with customers, which are assumed by shareholders and investors. That is, trade finance is granted that remains in their balance until their maturity. This means that the growth of your business is limited to the ability of the bank in question to take risks.

Originate to distribute:
Financial innovation has made it possible to manage credit risk more efficiently, by shifting the risk from its originators to third-parties more willing to assume greater risks. In investment banking, the entities that generate the trade finance operation are different from those that provide said financing and those that assume its risk.

It is now possible to originate, package and distribute risks between investors and markets, and cross borders.Taking into account the distinction that we made at the beginning by the type of client of one bank and another, the products and services that they demand are also different.

Simple banking products:
Financing in retail banking is granted through simple banking products, loans, or lines of credit, aimed at individuals or small and medium-sized companies. The amount is usually not very high. Usually, there is a lot of competition for the price.

Complex instruments other than simple credit:
The financing needs of corporations and large companies are more complex and include instruments other than simple bank credit. In long-term financing, we can find products such as loans (syndicated or bilateral) or bonds, placed between investors. Another format used in wholesale banking is project finance for the financing of large projects. Financial institutions compete for the price but also for their capabilities and expertise.

All companies need financing to carry out their activity, even if their main activity is to offer financing to third parties, as is the case with banks.

Deposits:
A significant percentage of retail banking financing comes from balance sheet products, mainly deposits it has received from its customers, which can account for up to two-thirds of an entity's onerous liabilities. More and more complex savings disintermediation products are being included (investment funds, pension plans and many more).

Capital markets:
Wholesale banking also receives deposits from its customers, but these are usually not enough to deal with its financing activity for third parties. For this reason, investment banks turn to the capital markets and are particularly active in the inter bank market, a fundamental tool that allows them to manage their liquidity.