Private banking and investment banking provide two different financial services. Bank as service provider generalises its own image. Most people often think that there is not so much difference between private banking vs investment banking because both banks deal with raising capital for investment purposes, but private banking and investment banking are different if you look closely. So let’s talk about the difference between private banking and investment banking.
Precap:
What is private banking?
Functions of private bank.
What is investment banking?
Function of investment bank.
Difference between private banking vs investment banking.
Quiz.
What Is Private Banking?
Private banking refers to the specialized financial services and goods that retail banks and other financial institutions provide to their high-net-worth individual customers. Many wealth management services are included, and they are all offered under one roof. Services provided include trust and estate planning, tax preparation, insurance, and investment and portfolio management.
Consumer banks and brokerages of all sizes offer private banking, which serves an exclusive client. This service is typically provided by differences referred to as “private banking” or “wealth management” divisions.
The Function Of A Private Bank
- Preferential rates and pricing on deposit accounts.
- General financial planning.
- Investment advice and wealth management.
- Estate planning.
- Lending.
- Tax planning and philanthropy.
- Credit and cash-flow management.
- Advising and assisting clients in their investment decisions.
- Providing wealth planning services.
- Managing client assets or wealth management.
- Personal and business banking.
- Retirement services.
- Securities brokerage and trading.
- Investment management services.
What Is Investment Banking?
It is a type of banking that organizes large, complex financial transactions like mergers or IPO (initial public offer) underwriting. These banks may raise money for companies in different ways, including underwriting the issuance of new securities for a corporation, municipality, and other institution.
Investment banks were legally separated from other types of commercial banks in the U.S. from 1933 to 1999.
The Function Of Investment Banking
- IPOs.
- Merger and Acquisitions.
- Risk Management.
- Research.
- Structuring of Derivatives.
- Merchant Banking.
- Investment management.
The Key Difference Between Private Banking Vs Investment Banking
Definitions:
Private banking refers to the specialized financial services and goods that retail banks and other financial institutions provide to their high-net-worth individual customers. Many wealth management services are included, and they are all offered under one roof.
It is a type of banking that organizes large, complex financial transactions like mergers or IPO (initial public offer) underwriting. These banks may raise money for companies in different ways, including underwriting the issuance of new securities for a corporation, municipality, and other institution.
Services:
Private banking includes personal and business banking services. These types of services include a wide range of financial services and products like savings accounts, investments, and credit cards. Private banks offer a variety of other services that include estate planning, insurance, tax planning, and wealth management.
One of the most critical aspects of an investment bank’s business is investment banking. Investment banks incur significant debt to support firms that require funding to expand and grow. Investment banks also lend start-up businesses equity capital so they can expand swiftly or buy other businesses so they may enter new markets.
Target and focus:
Private banking is a type of financial service that focuses on customer relationships more than on generating profit. Private banks are usually found in major cities, and they offer a wide range of services like wealth management, investment banking, mortgages, and personal loans.
It tends to be more profitable than other types of banks because it does not have to pay out interest on deposits. Many private banks specialize in providing advice and assistance related to investing customers’ funds in low-risk investments like high-yield bonds/equities. They may also help customers manage their portfolios by researching opportunities for growth through investments in bonds and stocks.
Future Opportunities:
There are good opportunities in private banking and investment banking fields. You will make more money if you go into investment banking, but if money is not everything to you, it all depends on your choice. If you like banking on a more personal level, then private banking is right for you. If you like doing stuff with large companies and banks, then go with investment banking.
These are some important differences between private banking vs investment banking. I hope now you understand about private banking vs investment banking and the difference between both. Let’s play a quiz on investment banking and private banking.
Quiz:
Que.1 Major functions of investment banks include the following except:
A. advising and providing underwriting arrangements for clients by issuing financial securities.
B. serving as dealers or market makers in capital markets.
C. providing advice on risk management and hedging.
D. attracting deposits and providing investment loans.
Que. 2 A company may hire a/an ________ to advise on and underwrite its new share issue.
A. loans officer
B. investment banker
C. share analyst
D. treasury officer
Que. 3 A significant source of income for investment banks is from:
A. issuing bank bills.
B. off-balance-sheet business activities.
C. issuing secondary securities.
D. issuing certificates of deposit.
Que. 4 The financial institution that is a specialist provider of financial and advisory services to companies is a/an:
A. credit union.
B. finance company.
C. building society.
D. investment bank.
Que. 5 ___________ are financial assets
A. Bonds
B. Machines
C. Stocks
D. A and C
Conclusion
Basically, private banking is meant to help wealthy individuals and large institutions preserve and grow their wealth and assets, while investment banking is about helping large companies buy and sell companies or raise capital, equity, and debt. I hope now you understand the difference between private banking vs investment banking.