Investment Banking vs. Corporate Finance: What’s the Difference?
Corporate finance and investment banking aren’t all that different in a general sense. Investment banks raise capital for other companies through securities operations in the debt and equity markets. Investment bankers also help coordinate and execute mergers and acquisitions (M&A). They offer advisory services to big clients and perform complex financial analyses.
Investment Banking
A generally accepted distinction between corporate finance jobs and investment banking jobs is that a corporate finance professional deals with day-to-day financial operations and handles short- and long-term business goals, while an investment banker focuses on raising capital. She might run private placements and conduct M&A deals. Investment banking grows a company,
Corporate Finance
Corporate finance manages a company. It’s a catch-all title for any business division that handles financial activities for a firm. It can be a bit tricky to differentiate it from investment banking because, depending on the context, investment banking might count as a type of corporate finance. Likewise, an investment banking firm might have a corporate finance division.
Investment Banking vs. Corporate Finance Example
It’s challenging, if not impossible, to nail down an accurate salary for the average corporate finance position. Too many different jobs are available, and many of them overlap.
A financial analyst, technically involved in investment banking, could expect a median salary of $84,300 in 2017, according to the Bureau of Labor Statistics (BLS). Half earned more and half earned less than $84,300. Meanwhile, a chief financial officer and other top professionals in the corporate finance field enjoyed a median salary of $104,700 in the same year, according to the BLS.
Even junior investment banking analysts can expect compensation of $70,000 to $150,000 a year when signing bonuses and performance-based bonuses are factored in, according to data from Wall Street Oasis.
The BLS expects financial analyst positions to grow at a rate of 11 percent between 2016 and 2026, faster than the 8 percent outlook for corporate finance executives.
Key Differences
Many choose to walk away from investment banking careers after a few years due to burnout. Investment banking deals tend to be executed by small teams—three to seven is standard—with one analyst, one or two associates, one vice president, and a lead managing director. Workflow is bottom-up, and those lowest on the rungs are responsible for an exceptional amount of effort. Tales abound of investment analysts and associates working 80- to 100-hour weeks. An 80-hour week works out to five 16-hour days or seven 11.5-hour days.
Those debating a career in investment banking versus a career in corporate finance have two overriding considerations: workload and salary. The prestige and compensation of investment banking jobs are alluring to many, so intense working hours are a small hurdle to clear.
Corporate finance jobs aren’t easy to get, but they’re more plentiful and less competitive than investment banking jobs. Corporate finance still offers an excellent career in business analytics and corporate culture to those who value their weekends, holidays, and evenings.
Special Considerations
Many different viable career paths can be found in corporate finance because there are so many different kinds of jobs in the field. Individuals can find their niches as accountants, advisors, account managers, analysts, treasurers, business analysts, or any number of other jobs. There are a few necessary skills, such as an understanding of corporate finance and effective communication skills.
Investment banking is considered one of the premier fields in the financial industry. There are two standard paths into an investment banking career: attend a noted undergraduate university and enter on the ground level as an analyst, or go to business school, earn a Master of Business Administration (MBA), and break through as an associate. Interested investment bankers should focus on degrees in finance, economics, banking, or investment analysis. Most intern or take low-level positions at large banks to gain experience, and many work as analysts before receiving their MBA.
Major investment banks, especially in New York and London, focus their recruiting efforts on the best-performing prospects from Ivy League schools—although it’s not unheard of for exceptionally analytical prospects with degrees in challenging subjects such as biopharmaceuticals or other medical fields to make their way into the industry.
Key Takeaways
- Investment banking grows a company, while corporate finance manages a company.
- A corporate finance professional deals with day-to-day financial operations and handles short- and long-term business goals, while an investment banker focuses on raising capital.
- The academic and experience credentials necessary to become an investment banker are higher than for most corporate finance positions.
Banking vs. Finance
Banking and finance are closely related fields that deal with the management of money and financial transactions. While banking primarily focuses on providing financial services to individuals and businesses, finance encompasses a broader range of activities including investment management, risk assessment, and financial planning. Banking involves activities such as accepting deposits, granting loans, and facilitating payments, while finance involves analyzing financial data, making investment decisions, and managing financial resources. Both banking and finance play crucial roles in the economy, but banking is more concerned with day-to-day financial operations, while finance takes a more strategic and long-term perspective.
Comparison
| Attribute | Banking | Finance |
|---|---|---|
| Definition | Banking refers to the industry and activities related to accepting deposits, lending money, and providing financial services. | Finance refers to the management of money, investments, and financial activities within an organization or individual. |
| Scope | Primarily deals with the operations of banks, including retail banking, commercial banking, and investment banking. | Encompasses a broader range of activities, including banking, investments, financial planning, risk management, and more. |
| Focus | Focuses on the specific functions and services provided by banks, such as accepting deposits, granting loans, and facilitating transactions. | Focuses on the overall management of funds, investments, and financial decision-making to maximize returns and minimize risks. |
| Regulation | Highly regulated industry due to the critical role banks play in the economy and the need to protect depositors’ funds. | Regulated to ensure fair and transparent financial markets, protect investors, and maintain stability in the financial system. |
| Services | Offers services such as savings accounts, checking accounts, loans, credit cards, mortgages, and other banking products. | Offers services such as investment management, financial planning, risk assessment, insurance, and various investment products. |
| Profitability | Generates revenue through interest earned on loans, fees charged for services, and investments made with customer deposits. | Generates revenue through various sources, including interest income, fees, commissions, trading gains, and investment returns. |
| Risk | Exposure to risks such as credit risk, market risk, liquidity risk, and operational risk due to lending and investment activities. | Exposure to risks such as market risk, credit risk, liquidity risk, interest rate risk, and regulatory risk in various financial activities. |
| Role | Facilitates the flow of funds in the economy, provides financial services to individuals and businesses, and supports economic growth. | Manages funds, allocates capital, provides financial advice, and supports economic activities through investments and financial services. |
Further Detail
Introduction
Banking and finance are two closely related fields that play a crucial role in the global economy. While they are often used interchangeably, banking and finance have distinct attributes that set them apart. In this article, we will explore the key differences and similarities between banking and finance, shedding light on their unique characteristics and contributions.
Definition and Scope
Banking refers to the activities carried out by financial institutions that accept deposits, provide loans, and offer various financial services to individuals and businesses. Banks act as intermediaries between savers and borrowers, facilitating the flow of funds in the economy. On the other hand, finance encompasses a broader range of activities related to managing money, investments, and financial planning. It includes areas such as corporate finance, investment banking, asset management, and personal finance.
Functions and Services
One of the primary functions of banking is to provide a safe place for individuals and businesses to deposit their money. Banks offer various types of accounts, such as savings accounts, checking accounts, and certificates of deposit, which allow customers to store their funds securely. Additionally, banks provide loans and credit facilities to individuals and businesses, enabling them to finance their projects, purchase assets, or meet their short-term cash needs.
Finance, on the other hand, focuses on managing and allocating funds efficiently. It involves activities such as investment analysis, portfolio management, risk assessment, and financial planning. Finance professionals help individuals and organizations make informed decisions about investments, assess the profitability of projects, and develop strategies to maximize returns while minimizing risks.
Regulation and Oversight
Both banking and finance are subject to extensive regulation and oversight to ensure the stability and integrity of the financial system. Banks are highly regulated entities due to their critical role in the economy and the potential risks associated with their operations. Regulatory bodies, such as central banks and financial regulatory authorities, enforce rules and regulations to safeguard depositors’ funds, maintain liquidity, and prevent fraudulent activities.
Finance, on the other hand, operates in a more decentralized and diverse environment. While financial markets and institutions are subject to regulations, the level of oversight may vary depending on the specific activities and jurisdictions involved. Regulatory bodies monitor areas such as securities trading, investment advisory services, and financial reporting to protect investors and maintain market integrity.
Career Opportunities
Both banking and finance offer a wide range of career opportunities for individuals with diverse skill sets and interests. Banking careers often involve customer service, risk management, lending, and financial analysis. Professionals in this field may work as bank tellers, loan officers, branch managers, or investment advisors.
Finance careers, on the other hand, encompass a broader spectrum of roles. Professionals in finance can pursue careers in investment banking, corporate finance, financial planning, asset management, or financial consulting. These roles require strong analytical skills, knowledge of financial markets, and the ability to make strategic decisions based on economic trends and data.
Risk and Return
Both banking and finance involve managing risks and seeking returns on investments, but the nature of these risks and returns differs. In banking, the primary risk is credit risk, which refers to the potential loss arising from borrowers’ inability to repay their loans. Banks carefully assess borrowers’ creditworthiness and collateral to mitigate this risk. Returns in banking primarily come from the interest charged on loans and the fees earned from various financial services.
In finance, the risks and returns are more diverse. Investment risks can include market risk, liquidity risk, and operational risk, among others. Finance professionals analyze investment opportunities, diversify portfolios, and employ risk management strategies to optimize returns while managing these risks. Returns in finance can come from capital gains, dividends, interest income, or other investment-related sources.
Conclusion
Banking and finance are interconnected fields that play vital roles in the global economy. While banking focuses on providing financial services, accepting deposits, and granting loans, finance encompasses a broader range of activities related to managing money, investments, and financial planning. Both sectors are subject to regulation and oversight, offer diverse career opportunities, and involve managing risks and seeking returns. Understanding the attributes of banking and finance is essential for individuals and businesses to make informed financial decisions and navigate the complex world of finance.
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