Commercial and Investment Banks Flashcards
(7 cards)
1
Q
What functions do commercial banks have?
A
- Accept savings
- Lend
- Act as financial intermediaries
- Allow payments from one agent to another
- Offer advice.
2
Q
What are the functions of investment banks?
A
- Prop trading - taking excess capital and investing it
- Market making - ensuring markets can exist
- Mergers and acquisitions - advice for mergers
- New issues - help when people want to issue new bonds/ shares.
3
Q
Example of investment bank
A
JP Morgan
4
Q
Example of commercial bank
A
Lloyds bank
5
Q
Which is more profitable?
A
Investment
6
Q
What is common nowadays?
A
Banks where they have both commercial and investment sides (e.g. HSBC)
7
Q
What is the systematic risk of merging both sides?
A
Failures of one side can bring down the other side, which can then bring down entire financial system (e.g. GFC 2008).
