Commercial Banks and Corporations

This is me getting up to speed on things everybody else is clear on. Can also be a place to stick any new info we come across.

An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client’s agent in the issuance of securities. An investment bank may also assist companies involved in mergers and acquisitions, and provide ancillary services such as market making, trading of derivatives, fixed income instruments, foreign exchange, commodities, and equity securities.

A commercial bank (or business bank) is a type of financial institution and intermediary. It is a bank that provides transactional, savings, and money market accounts and that accepts time deposits.

Glass-Steagall Act of 1933: “Commercial banks may take deposits and issue loans; investment banks may be involved in the buying and selling of securities” (Dalton). Meant to “limit the conflicts of interest created when commercial banks are permitted to underwrite stocks or bonds” (PBS). The affiliation restriction section of the act was repealed in 1999, which some have called a cause of the financial crisis of the late 2000s. Ok, and now  working on the Volcker Rule, part of the 2010 Dodd-Frank Act (financial reform, signed into law by Pres. Obama) which has been described as “Glass-Steagall lite.” Would prohibit proprietary trading of non-government securities and also restrict bank and affiliate sponsorship and ownership of hedge funds and private equity funds.

Companies always need to borrow money to cover purchases of raw materials, machinery parts, inventory and/or payroll. Corporate checking accounts, currency specific credit cards and lock boxes are also offered by commercial banking to help make foreign trade possible for a company. Currency-specific credit cards are also important in eliminating the cost of cross currency purchasing, which normally is done at expensive valuation levels.

via Wikipedia, “Investment Banking”, “Commercial Bank”, “Glass-Steagall Act”

also Dalton, John M. How the Stock Market Works.

and PBS, “The Long Demise of Glass-Steagall”

not to mention Chron.com’s “Role of Commercial Banks in International Business”, “Investment Bank Vs. Commercial Bank”

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  1. […] deposits of public money – it is something that investment bankers are forbidden to do (see here for a bit more discussion on […]



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