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Overview of Banking Types and Risks

The document outlines two main types of banking: Commercial and Corporate Banking, which focuses on the financial needs of companies and involves extensive credit risk analysis, and Investment Banking, which assists companies with capital raising and mergers while primarily being fee-based. Commercial banking carries higher risks due to large loans and potential portfolio concentration, while investment banking's advisory services are generally free of credit risk but can still involve significant risks through underwriting. Both types of banking serve distinct purposes and have different risk profiles.

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10 views2 pages

Overview of Banking Types and Risks

The document outlines two main types of banking: Commercial and Corporate Banking, which focuses on the financial needs of companies and involves extensive credit risk analysis, and Investment Banking, which assists companies with capital raising and mergers while primarily being fee-based. Commercial banking carries higher risks due to large loans and potential portfolio concentration, while investment banking's advisory services are generally free of credit risk but can still involve significant risks through underwriting. Both types of banking serve distinct purposes and have different risk profiles.

Uploaded by

lsaidheeraj9
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Types of Banking

Types of Banking Description Differences

Commercial and Corporate Commercial and corporate Credit risk analysis on


Banking banking deals with companies focuses on
companies and institutions. assessing industry and
Companies have different business risk, management
banking needs from risk and structure, in
individuals. For instance, addition to financial risks.
they may need letters of The due diligence required
credit to facilitate trade, for conducting credit checks
cash management to make on such entities can be very
timely payments to extensive.
suppliers or to borrow long-
term funds for project These loans are typically
expansion. large-ticket in nature. They
also tend to give rise to
portfolio concentration at a
bank. The risks are higher
compared to retail banking.
A few loans going bad can
adversely affect the
profitability and even
viability of the bank.

Investment Banking Investment banking Investment banking is


engages with companies to largely a fee-based business
help them with strategic and entails doing advisory
decisions such as raising underwriting and
capital and advising on arrangement of capital for
mergers and acquisitions. large corporations.
Underwriting a capital
raising proposal also
involves credit risk
assessment of the client.

While the advisory business


is typically free of credit
risk, investment banking
business typically tends to
concentrate any credit risk,
as banks’ underwriting
divisions and proprietary
trading activities may give
rise to significant levels of
credit risk.

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