The difference between commercial banks and investment banks

Similarities and differences between investment banks and commercial banks \x0d\ Similarities: In essence, investment banks and commercial banks are intermediaries between capital surplus and capital shortage. On the one hand, they enable capital suppliers to make full use of surplus funds to obtain income, on the other hand, they help those who need funds to obtain the funds needed for development. In this sense, their functions are the same. Both of them are used as financial media to promote the more effective allocation of social resources. In addition, due to the development of information technology, innovation in financial field and liberalization of financial supervision, the difference between them is becoming more and more blurred. In the process of financial market development, especially in the past 30 years, due to the fierce competition between the two sides, their respective businesses have been expanding and overlapping, and the competition between investment banks and commercial banks in new financial markets and financial instruments has been fierce. For their own development, commercial banks are heavily involved in investment banking, such as OTC derivatives market and financial services. They use their respective advantages to provide some consulting services including suggestions, methods and tools for institutional and individual investors. Commercial banks use their extensive business, high-level financial talents, rich business experience and skilled financial skills to compete fiercely with investment banks in their original business fields. Therefore, the boundary between the two is becoming more and more blurred, and the business they operate is also converging. \x0d\ Difference: In the process of playing the role of financial intermediary, the operation mode of investment banks is quite different from that of commercial banks. Investment banks are financial intermediaries for direct financing, while commercial banks are financial intermediaries for indirect financing. As an intermediary of direct financing, investment bank only acts as an intermediary to find suitable financing opportunities for fundraisers and investors. But generally speaking, investment banks do not intervene in the rights and obligations between investors and fundraisers, and only charge commissions. Investors and fundraisers directly have corresponding rights and undertake corresponding obligations. For example, investors invest in enterprises by subscribing for shares in enterprises, which means that investors have property rights and obligations directly with enterprises, and investment banks do not intervene, so this financing method is called "direct financing method". On the other hand, commercial banks have the dual identities of capital demanders and capital suppliers. For depositors, they are demanders and depositors are fund suppliers. For lenders, banks are suppliers of funds and lenders are demanders of funds. In this case, the rights and obligations between depositors and lenders do not occur directly, but indirectly through commercial banks, and there is no direct contract constraint between the two parties, so this financing method is called "indirect financing method". \x0d\ Specifically, there are seven differences between commercial banks and investment banks: \x0d\ 1) In terms of financing methods, investment banks conduct direct financing and focus on long-term financing; Commercial banks conduct indirect financing, mainly short-term financing. \x0d\2) From the perspective of basic business, the basic business of investment banks is securities underwriting, while the basic business of commercial banks is deposits and loans. \x0d\3) From the perspective of business activities, investment banks mainly conduct business in the capital market; Commercial banks mainly conduct business in the money market. \x0d\4) From the perspective of profit sources, investment banks rely on commissions paid by customers; Commercial banks rely on deposit and loan spreads. \x0d\5) From the perspective of business philosophy, the business philosophy of investment banks is to pay equal attention to both stability and development risks on the premise of controlling risks; Commercial banks must adhere to the principle of conservatism in pursuing the combination of safety, profitability and liquidity. \x0d\6) From the perspective of regulators, the regulators of investment banks are mainly the CSRC and other institutions; Commercial banks are mainly supervised and managed by the central bank. \x0d\7) In terms of risk characteristics, for investment banks, generally speaking, investors face greater risks and investment banks face less risks. For commercial banks, under normal circumstances, depositors face less risks, while commercial banks face greater risks.