Difference Between Corporate and Commercial Banking
From large, multinational financial institutions to small, local depositories, banks provide a wide range of services to numerous types of customers. Most major banks offer both commercial and corporate banking experts for their customers. Although both modes of business banking have some similarities, banks offer specific services for their corporate clients that differ from those provided to their individual and small-business customers.
The primary purposes of corporate banking include raising capital and managing credit for their corporate clients. A major component of corporate banking involves the development of investment instruments such as stocks and bonds. Other services can include cash management, credit financing, loan underwriting and compliance with government financial reporting regulations. The separation of corporate banking from consumer or commercial banking services enables the financial experts in these fields to focus on meeting the needs of corporate clients.
Corporate banking offers funding to corporations and institutional customers through debt issues, structured financial products or other investment instruments. These instruments can include bridge loans and letters of credit. For example, a C corporation might use a bridge loan for a quick infusion of capital until another source of financing is finalized. A letter of credit assures the recipient that, if the corporation fails to repay a loan, the bank issuing the letter of credit will repay the loan.
The term "commercial banking" covers services banks offer to individuals and small businesses. Commercial banks manage checking and savings accounts for individuals and small businesses, as well as provide credit for borrowers. Small businesses obtain needed credit from commercial banks for business loans. Commercial banks also invest in credit instruments such as government or municipal bonds. These bonds often deliver steady return rates that keep pace with inflation.
One of the primary examples of commercial banking is how commercial banks serve as primary lenders on nearly every type of consumer credit. Commercial banks make loans to individuals on such items as auto loans, credit cards and home mortgages. Commercial banks also provide lines of credit to small businesses for equipment loans, construction loans and mortgages on commercial property. These banks also help depositors earn more on their money through instruments such as certificates of deposit, money market accounts and interest-bearing checking and savings accounts.