What is the difference between retail and wholesale banking?
Retail = high volume, low value
Wholesale = low volume, high value
What is contained within retail banking?
- Personal banking (households)
- SMEs
What is contained within wholesale banking?
- Corporate banking
- Investment banking
What is private banking a subset of?
Investment banking
What is private banking?
Like personal, but very high value
What institutions fall under retail banking?
- Commercial banks
- Savings banks
- Cooperative banks
- Building societies
- Credit unions
- Finance companies / houses
What are commercial banks?
- Historically focused on commercial loans
- Now universal banks
- Largest banks in most countries e.g. HSBC, Barclays
What are savings banks?
- Mutual orgs, owned by depositors
- Many have demutualised
- Serve social & economic development of region
What is an advantage of demututalisation?
Cheaper external financing from equity
What are cooperative banks?
- Mutual, like savings banks
- Less likely to be government owned
- Small & localised
- Important in parts of Europe
What are building societies?
- Similar to savings/co-op banks
- Not actually banks
- Limited funding from money markets – rely on deposits
What are credit unions?
- Mutually owned by depositors
- Limited to particular people e.g. employees, residents
- Non-profits (exempt from corporate income tax)
What are finance companies / houses?
- Issue unsecured consumer loans
- Sometimes commercial loans
- Often subsidiaries of retail firms
- Funded by money & capital market securities (no deposits)
What is corporate banking?
Services to companies, including other FIs
What is included in corporate banking?
- Cash management & transaction services
- Credit & debt financing
- Commitments & guarantees for imports/exports
- FX & interest rate-related transactions
- Securities underwriting & fund management services, e.g. pensions
What is the core activity of corporate banking?
Providing debt financing (largest source in Europe & Asia – even in market-oriented US, banking lending is still 31%)
What is investment banking?
Services for large companies & other FIs only
True or false: investment banking involves no asset transformation
True
What does investment banking involve?
Brokerage – bringing together buyers & sellers of securities
What do investment banks specialise in?
Design & issuance of financial contracts
What is the difference between wealth management & private banking?
wealth management = $100k+
private banking = $1million+
What are money market securities?
Commercial paper (short-term, fixed-interest debt)
In what areas does traditional banking differ from universal banking?
- Products & services
- Income sources
- Competitive environment
- Strategic focus
- Customer focus
Name a piece of universal banking legislation
EU’s Second Banking Directive (1992) defined banking business to include:
- securities
- insurance
- pensions
