Difference Between Corporate & Commercial Banking

Difference Between Corporate & Commercial Banking
••• bank image by Pefkos from Fotolia.com

Banking has been around for a long time. Its history can be traced as far back as 1800 BC in ancient Babylon during Hammurabi’s time. Records show that temple priests would loan out money to people.

And within the Greek and Roman historical settings, banking can be traced as far back as 4 BC. History shows that public institutions of the time, temples, and wealthy merchants would engage in financial transactions, exchange currency and weigh coins while testing them for purity.

Even book transactions existed and enabled people to deposit money with a moneylender in one city and receive credit in another without necessitating the need for transportation.

So, it’s safe to say that banking has come a long way since then. In addition, it has undergone an evolution. And now we have many areas of banking specializations, including commercial and corporate banking, available in various types of financial institutions.

What Is Commercial Banking?

Typically, commercial banks accept deposits from the general public and provide loans to them to generate revenue. Therefore, commercial banking aims to make money by borrowing money and lending it out again.

Usually, commercial banks will lend to individuals and businesses at higher interest rates while offering lower interest rates to those who deposit their money within their accounts. The difference between these two types of interest rates will become part of the bank's revenue.

Commercial banks also facilitate the exchange of money and assets as well as the payment of bills. In addition, they enable people to change their money from one currency to another. They will then charge a fee for these services, thus generating additional revenue.

Most local savings and retail banks fall under the commercial bank category.

What Is Corporate Banking?

Corporate banking includes banking services that have been tailored to corporations, including larger companies. These services include the management of cash and assets and the provision of business loans and underwriting services.

Generally, corporate banks tend to engage in any activities that enable businesses to meet their objectives. And they also deal with very significant amounts of money.

Commercial vs. Corporate Banking: Target Clientele

The primary difference between corporate banking and commercial banking is the target clientele.

Commercial banks usually deal with small businesses and individuals who want to deposit, invest and borrow money. However, the various types of banks falling under the corporate banking umbrella deal with larger institutions and companies.

Commercial vs. Corporate Banking: Services Offered

Another difference between commercial and corporate banks is in their facilitation. Within the retail banking sector, the bank acts as the primary moneylender to its clients. So, whether small businesses need to open lines of credit or individuals need a mortgage or auto loan, the bank will provide the loan. That is not always the case with corporate banks.

However, corporate banking companies do more than advance direct funding to their business clients. They also enable businesses to achieve their goals by creating investment instruments like bonds, writing letters of credit and providing business asset management advice.

In addition, corporate banking also includes commercial real estate, equipment lending, payroll services and structured business solutions to international business clients.

Corporate vs. Commercial Banking: Financial Protection

Losing money is always a concern for anyone. The Federal Deposit Insurance Corporation (FDIC) insures your deposits and any accrued interest to the tune of ​$250,000​ per depositor for each account type owned if your bank is FDIC-insured and fails. You will receive the money in the form of a check or alternative bank account in another similarly insured bank.

Unfortunately, FDIC tends to insure a limited number of financial products, such as CDs and checking, savings and money market deposit accounts. For that reason, corporate and investment banking products like bonds, mutual funds and stocks, among others, are likely to be uninsured.

However, if your business has cash deposits or has invested using the acceptable forms of insured accounts, your corporate funds will be protected up to ​$250,000​ per account per bank. And that protection will be separate from what you get as an individual.

You can receive comprehensive banking services in one go. But that would happen if you chose a financial institution with both personal and corporate banking sections. However, you need to remember the $250,000 insurance limit per account per bank. If you have a considerable amount of money in one bank, it may not be entirely protected if the institution fails.