Retail Banking vs Corporate Banking: An Overview
Retail banking refers to a bank’s section that deals directly with consumers, whereas corporate banking refers to the component of the banking industry that deals with businesses. With bank branches aplenty in most major cities, retail banking is the most visible face of banking to the general public. Corporate banking, on the other hand, works with businesses directly to provide loans, credit, savings accounts, and checking accounts that are tailored to the needs of businesses rather than people.
Retail Banking
Retail banking is a type of financial service that is available to the general public. Consumer banking, also known as personal banking, allows customers to manage their money by providing them with basic banking services, credit, and financial counseling.
The term “retail banking” refers to a wide range of products and services, including:
- Checking and savings accounts
- Certificates of deposit (CDs)
- Mortgages
- Automobile financing
- Credit cards
- Lines of credit such as home equity lines of credit (HELOCs) and other personal credit products
- Foreign currency and remittance services
Clients of retail banking may also be offered the following services, which are usually provided by the bank’s other divisions or affiliates:
- Stock brokerage (discount and full-service)
- Insurance
- Wealth management
- Private banking
A client’s level of customized retail banking services is determined by their income level and length of engagement with the bank. A teller or customer service person would typically serve a client of modest means, but an account manager or private banker would handle the financial needs of a high-net-worth individual (HNWI) with a long history with the bank.
Although physical branches are still necessary to convey the sense of solidity and stability that is so important in banking, thanks to the proliferation of automated teller machines (ATMs) and the popularity of online and telephone banking, retail banking is perhaps the area of banking that has been most impacted by technology.
Corporate Banking
Corporate banking, also referred to as business banking, caters to a wide range of clients, from small to mid-sized local firms with a few million dollars in revenue to enormous conglomerates with billions in sales and offices all over the country. After the Glass-Steagall Act of 1933 separated the two activities, the word was first used in the United States to distinguish it from investment banking.
While that regulation was overturned in the 1990s, most banks in the United States and worldwide have been offering corporate and investment banking services under the same cover for many years. Corporate banking is a major source of profit for most banks. However, being the largest originator of client loans, it is also the source of recurrent loan write-downs.
Commercial banks offer the following products and services to corporations and other financial institutions:
- Loans and other credit products
- Treasury and cash management services
- Equipment lending
- Commercial real estate
- Trade finance
- Employer services
Through their investment banking arms, commercial banks also offer related services to their corporate clients, such as asset management and securities underwriters.
Special Considerations
The financial industry is a vital component of the economy, both at home and abroad. First and foremost, consumers—both personal and business—deposit money into savings accounts, which banks then utilize to lend to others. Banks also assist in the creation of credit, the facilitation of trade, and the construction of capital.
When banks have issues, it has disastrous consequences for the economy. Consider the financial crisis of 2007-2008. The crisis stemmed from the U.S. housing bubble and banks and financial institutions around the world’s excessive exposure to derivatives and securities based on U.S. home values. Banks became increasingly hesitant to lend money to each other or to businesses. This caused a near-total standstill in the global banking and credit system, resulting in the worst global recession since the Great Depression. Because of the global economy’s near-death experience, regulators have renewed their focus on the largest banks, which are deemed “too big to fail” due to their centrality to the global financial system.
