Learning Objectives:

• Distinguish between the main types of banks.

• Understand the services provided by each type.

• Explain the blurring of distinctions in the modern banking landscape.

3.1 Categories of Banks

The University of Edinburgh course identifies several types of banking: “retail, private, corporate, investment, Islamic” . Modern banking has evolved into several distinct categories, each serving different customer segments and performing different functions .

3.2 Retail Banking

Retail banking takes care of the regular day-to-day banking that most people know banks for, providing checking and saving services, issuing credit cards, and offering loans, mortgages, and other financing to individuals . As the Corporate Finance Institute notes: “Retail banking divisions may also be in charge of providing loans, mortgages, and other financing” . Retail banks are “the kind most of us interact with every day” .

3.3 Commercial Banking

Commercial banking does the same things that retail banking does but for a larger audience. Where retail banking is tailored for the individual, commercial banking caters to small businesses or larger firms . Commercial banks provide business checking accounts, lines of credit, commercial real estate loans, and treasury or cash-management services . They help companies manage payroll, fund expansions, and even support international trade through letters of credit . As the University of Edinburgh course highlights, commercial banking is a distinct type of banking requiring specific knowledge .

3.4 Investment Banking

Investment banking specializes in capital raising and advisory services. An investment bank helps its clients raise capital in many different ways, such as underwriting debt and equity issuances, helping in launching an IPO, investing the client’s excess funds, along with other services . Investment banks generally do not accept consumer deposits. Instead, they help corporations and governments raise capital through stock and bond offerings, advise on mergers and acquisitions, and perform other capital market functions .

3.5 The Blurring Distinctions

The distinction between commercial and investment banking became less pronounced after the financial crisis of 2007–08. Changes to U.S. banking laws and regulations allowed financial holding companies to operate commercial banking, investment banking, and wealth management businesses under the same corporate umbrella . This blurring reflects the evolving nature of banking in the modern financial system.