The definition of a bank depends on who's using it and what they're using it for. What the typical family needs from a bank will be different from what a local restaurant needs, or what a hospital needs or a multinational corporation. Different types of banking – retail, corporate, investment and private – have evolved to serve different needs. Today, financial institutions frequently offer more than one type of banking, and the lines between them can sometimes blur.
Retail Banking Services
Retail banks generally serve individuals and small- or medium-sized businesses. A retail bank typically provides a range of basic and essential financial services, such as checking and savings accounts, mortgages, auto loans and other consumer and small-business lending. It also offers services such as cashier's checks, ATM access, credit cards and safe-deposit boxes, as well as investments like certificates of deposit or money market funds. When you go to your local bank branch to deposit checks or break a $100 bill, you're probably going to a retail bank. While the traditional retail bank is an institution with brick-and-mortar branch offices, several now operate exclusively online.
Corporate Forms of Banking System
Corporate or "wholesale" banking refers to more complex services available to big companies, other banks, government agencies and large institutions such as colleges, charities or pension funds. These include cash-management services, such as tracking revenue and cash flow. Wholesale banks provide loans, frequently without collateral, or help assemble lenders to provide especially large amounts. They may arrange leases for vehicles and equipment, provide letters of credit or convert currencies. Wholesale banks provide their clients with retail-type services, too – big companies still have to write checks, after all – but are set up to do so on a much more massive scale. You'll sometimes see wholesale or corporate banking services referred to as commercial banking, though that term is more accurately used to distinguish both retail and wholesale banks from investment banks.
Investment Types of Banking
Investment banks work primarily in the capital markets helping companies obtain large-scale financing. This includes corporate underwriting, in which the bank helps a company raise money by issuing stock or selling bonds. The bank gauges the potential demand for such securities and lines up buyers for them. Investment banks also provide consulting and strategic services, assisting with mergers and acquisitions, asset dispositions, corporate restructurings and similar activities. These institutions commonly provide brokerage services and other asset-management functions to their clients as well.
Special Private Banking
Private banking is a special tier of service offered to wealthy customers. This involves a level of service beyond that offered by the typical retail banking operation. But their needs don't really mesh with the typical offerings of wholesale or investment banks. Private banking includes wealth-management services, investment support and advice, retirement and estate planning, and assistance in such activities as setting up trusts. To gain access to private banking, a depositor generally needs to have at least $500,000 in investable assets, which are funds available for immediate use. Some retail banks offer private banking services, as do some investment banks.
Cam Merritt is a writer and editor specializing in business, personal finance and home design. He has contributed to USA Today, The Des Moines Register and Better Homes and Gardens"publications. Merritt has a journalism degree from Drake University and is pursuing an MBA from the University of Iowa.