LECTURE 18

BANKS

Role of banks
- Has been to take deposits and make loans.
- Interest of loans is greater than the interest paid on deposits.
- Differences between two has to cover administrative costs and loan losses.
- Commercial banking: Deposit-taking and lending activities.
- Investment banking: Concerned with assisting companies in raising debt and equity, and
providing advice on mergers and acquisitions, major corporate restructurings, and
providing advice on M&A, major corporates restructurings, and other corporate finance
decisions.

Commercial banking

- Can be classified as retail banking or wholesale banking.

- Retail banking: Involves taking relatively small deposits from private individuals or small
business and making relatively small loans to them.
- Wholesale banking: Involves the provision of banking services to medium and large
corporate clients, fund managers, and other financial institutions.

Money center banks: Banks that are heavily reliant on wholesale banking and fund their lending by
borrowing in financial markets.