Retail vs Commercial vs Corporate vs Investment Banking
This is probably a dumb question to most but I'm seriously confused about the terminology for different types of banking.
Retail banking is like working at a bank branch of Wells Fargo/Chase. So helping individuals with loans and their bank accounts. But I've heard people say that this is also "commercial banking" as a commercial bank is a bank that has brick and mortar locations for individuals to deposit and withdraw money.
I've heard that commercial and corporate banking is the same thing. I've heard people say that "Corporate banking is the business version of retail/commercial banking". Isn't that what investment banks do?
Investment banks help companies with IPOs, mergers, find buyers for their stock, underwrite debt, etc for companies. So what is it exactly that corporate banks do besides corporate bank accounts or loans?
Different websites have given me different definitions so is there just no defined answer and it varies by bank?
Investment banking is where only the finest students go to eventually earn 7 figure salaries. The other three are for non-target scum
Retail bankers claim they are in commercial banking, commercial bankers put corporate banking in email signature, corporate bankers say they are a part of CIB, investment bankers say they work in M&A
Every time someone tells you they're in "Corporate & Investment Banking", you know it's the former
Retail banking is lending and providing banking services to individuals. Commercial banking is lending to smaller and medium-sized businesses while corporate banking is the same but for larger corporates. Corporate bankers sometimes work closely with investment bankers because banks often lend to their IB clients so a lot of the IB work will involve the corporate banker, like when they're issuing debt, upsizing revolvers etc. I've also worked with commercial bankers on some smaller, growing clients.
Well, way back when...
Retail...married dude with a minivan, wife, and 2.5 kids.
Corporate...married dude with 1.5 kids with a country club membership and 3 series BMW thinking he's a a hotshot.
Investment...singe dude with 4 red sports cars but drooling at his fifth and an extra zero on his comp compared to corporate dude.
Now...
All three just got their third stimulus check...
If you're referring to just the lending side strictly, corporate banking typically does more lower yielding debt deals that are not syndicated, aka are held by the bank's balance sheet. So literally e.g. BofA is lending money to e.g. IBM which is not highly levered (corporate banking debt deals are definitely below 4x EBITDA for example, and often much less). Investment banking lending is typically for either (A) higher yield debt deals that have leverage beyond what the corporate bank would do (6, 7, even 8x+), and needs to be syndicated to investors, tranched out, etc., or (B) DCM style deals that are so large they also need to be syndicated.
People have already covered IB / retail banking, so I'll go into a bit more detail on corporate vs commercial banking. Corporate banking and commercial banking are similar, but not the same. They both lend, but corporate banking is often a relationship management arm that i) offers bonus services to existing investment banking clients and ii) brings in additional investment banking clients. Commercial banking is more focused on directly returning profits via interest.
If you think about lending / debt, large companies have both larger capital needs and better credit profiles than smaller companies. This means corporate banking deals tie up a lot of capital that's locked into relatively low returns. A 1L bank loan to a large-cap company might be priced 350bps lower than a similar loan to a small business and commit a lot more capital. A lot of corporate banking products like RCFs are loss leaders from an opportunity cost perspective, especially since those facilities usually come with additional discounts to please clients. The ultimate end goal of these products is to cross-sell higher margin businesses like treasury / cash management, M&A, capital markets services, RX, etc.
All of this adds up to corporate banking being a lot less transactional than either commercial banking (which has less cross-sell opportunities and tends to have shorter-length loans) or investment banking, and more focused on maintaining / creating long-term client relationships.
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