Retail Banking Vs. Corporate Banking

[Reyed Mia (Apprentice, DIU)]

Retail Banking Vs. Corporate Banking

Retail banking refers to the division of a bank that deals directly with retail customers. Also known as consumer banking or personal banking, retail banking is the visible face of banking to the general public, with bank branches located in abundance in most major cities. Banks that focus purely on retail clientele are relatively few, and most retail banking is conducted by separate divisions of banks, large and small. Customer deposits garnered by retail banking represent an extremely important source of funding for most banks.

Corporate banking, also known as business banking, refers to the aspect of banking that deals with corporate customers. The term was originally used in the U.S. to distinguish it from investment banking, after the Glass-Steagall Act of 1933 separated the two activities. While the Act was repealed in the 1990s, corporate banking and investment banking services have been offered for many years under the same umbrella by most banks in the U.S. and elsewhere. Corporate banking is a key profit center for most banks; however, as the biggest originator of customer loans, it is also the source of regular write-downs for loans that have soured.

Products and Services – Retail Banking

Retail banking encompasses a wide variety of products and services, including:

Checking and savings accounts – customers are generally charged a monthly fee for checking accounts; savings accounts offer slightly higher interest rates than checking accounts but generally cannot have checks written on them.

Certificates of Deposit and Guaranteed Investment Certificates (in Canada) – these are the most popular investment products with conservative investors, and an important funding source for banks since the funds in these products are available to them for defined periods of time.

Mortgages on residential and investment properties – because of their size, mortgages account for both a substantial part of retail banking profits, as well as the biggest chunk of a bank's exposure to its retail client base.

Automobile financing – banks offer loans for new and used vehicles, as well as refinancing for existing car loans.

Credit cards – the high interest rates charged on most credit cards makes this a lucrative source of interest income and fees for banks.

Products and Services – Corporate Banking

The corporate banking segment of banks typically serves a diverse range of clients, ranging from small to mid-sized local businesses with a few millions in revenues to large conglomerates with billions in sales and offices across the country. Commercial banks offer the following products and services to corporations and other financial institutions:

Loans and other credit products – this is typically the biggest area of business within corporate banking, and as noted earlier, one of the biggest sources of profit and risk for a bank.

Treasury and cash management services – used by companies for managing their working capital and currency conversion requirements.

Equipment lending – commercial banks structure customized loans and leases for a range of equipment used by companies in diverse sectors such as manufacturing, transportation and information technology.

Commercial real estate – services offered by banks in this area include real asset analysis, portfolio evaluation, debt and equity structuring.

Trade finance – involves letters of credit, bill collection, and factoring.

Employer services – services such as payroll and group retirement plans are typically offered by specialized affiliates of a bank.


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