What is the difference between banking and finance?
As a provider of individual and business banking services in Utah, we know a thing or two about the difference between banking and finance. But not everyone does. Banking and finance are two distinct areas within the broader financial services industry. While they are often used interchangeably, they represent different aspects of managing money and investments. Understanding the differences between banking and finance is important for individuals and small businesses to make informed financial decisions.
What is Banking?
Banking refers to the services and activities that banks provide, such as deposit-taking, lending, and managing customer accounts. Banks are financial institutions that are licensed to operate by regulatory bodies, such as central banks or financial supervisory authorities. For example, a small business looking for business checking or treasury management services in Utah would utilize business banking services.
Banks play an essential role in the economy by providing financial intermediation between savers and borrowers. They use the deposits they receive from savers to make loans to borrowers, who use the funds for various purposes, such as purchasing a home or starting a business. Without an intermediary like ourselves between the SBA and SBA loans for small businesses in Utah, it would be difficult for new companies to get the financing they need.
Banks also offer a range of other services, such as credit cards, mortgages, and personal loans. They may also provide wealth management services, such as investment advice and retirement planning. And yet it is the wealth management services and investment advice that gets us talking about finance.
What is Finance?
Finance, on the other hand, is a broader term that encompasses all aspects of managing money, investments, and financial resources. Finance includes activities such as investing, portfolio management, risk management, and financial analysis.
Finance is used by individuals, businesses, and governments to manage their finances and make strategic decisions. For example, a company’s finance department may be responsible for managing its cash flow, analyzing investment opportunities, and determining the best way to finance new projects.
The field of finance is divided into several sub-disciplines, including corporate finance, investment banking, financial planning, and financial analysis. These areas are concerned with different aspects of managing money and investments, but they all fall under the umbrella of finance.
Differences between Banking and Finance
The primary difference between banking and finance is that banking is a specific subset of finance. While banking is focused on managing deposits, loans, and other financial products and services provided by banks, finance encompasses a broader range of activities related to managing money and investments. At First Utah Bank, we are solely focused on providing traditional banking and business banking services for individuals and small businesses right here in the Beehive State.
Another significant difference between banking and finance is the level of risk involved. Banks are highly regulated and must comply with strict regulatory requirements to ensure the safety of customer deposits. As a result, they tend to focus on low-risk investments and lending activities. Our customers know their money is safe at First Utah Bank. While some of our competitors may make risky bets with their depositors’ money, we do not.
In contrast, finance is often associated with higher levels of risk, as investors seek to generate higher returns by investing in riskier assets such as stocks or derivatives. While banks may also invest in these types of assets, they typically do so through specialized investment vehicles that are separate from their traditional banking activities.
Different Career Options for Banking and Finance
Finally, the career paths in banking and finance also differ. Banking careers are typically focused on customer service, risk management, and compliance. In contrast, careers in finance are often focused on financial analysis, investment management, and corporate finance.
In summary, while banking and finance are related, they represent distinct areas within the financial services industry. Banking is focused on managing deposits, loans, and other financial products and services provided by banks, while finance encompasses a broader range of activities related to managing money and investments. Understanding the differences between banking and finance is important for individuals and businesses to make informed financial decisions and pursue the appropriate career paths.
Investment Banking vs Corporate Banking
Difference Between Investment and Corporate Banking
It is very important to know the professions you want to pursue thoroughly. Knowing both the pros and cons can help better compare the occupations. Furthermore, one should choose the job carefully as it depends on it. For example, investment banking helps create capital rather than handle it, while corporate banking involves banking services, including loans, especially to companies. Therefore, a career in investment banking would include being in the limelight and earning more than a career in corporate banking.
Table of contents
- Difference Between Investment and Corporate Banking
- What is Investment Banking?
- What is Corporate Banking?
- Investment vs Corporate Banking – Prerequisites
- Employment Outlook
- Compensation
- Investment and Corporate Banking – Pros & Cons
- Investment Banking vs Corporate Banking Video
- Conclusion
- Recommended Articles
What is Investment Banking?
Investment banking involves: –
- Providing a range of banking services like underwriting
- Raising capital for companies
- Issuing securities
- Facilitating mergers
Investment banks act as an intermediate while raising capital funding. Investment banking involves two main sides vis-à-vis the selling and buying sides. The selling side includes trading securities or monetary gain or portfolio gain, and it also involves promoting securities or research and underwriting. In contrast, buying involves giving clients sound advice on investment services.
What is Corporate Banking?
Corporate banking is also known as corporate financing. Corporate banking caters to large-scale companies and businesses. They focus on various banking services like issuing loans, setting up portfolios, and helping MNCs by giving them options for lowering their taxes.
We can say that a corporate banker closely studies his clients’ portfolios and ensures that financial risks minimize. There are numerous opportunities for commercial banks. You can work in many positions: Credit Analyst, Loan Officer, Branch Manager, Trust Officer, and Mortgage Banker.
Investment vs Corporate Banking – Prerequisites
If you are an undergrad, you should pursue an MBA from a business school and enter the investment banking sector as an associate. The skills you would want to teach yourselves include an in-depth understanding of corporate finance, quick calculation skills, and organizational analysis. In addition, excellent communication skills are a must for a candidate looking forward to a career in investment banking.
A qualification in a subject such as law, business studies, management, accountancy, finance, mathematics, or economics can be advantageous, as can an MBA or similar professional qualification for having opportunities in corporate banking. Additional skills required for a career in corporate banking include numeracy skills, solving problems, negotiation skills, and working under pressure.
Employment Outlook
There are many positions to acquire in the investment banking sector, including: –
- Analyst: The analyst is the basic profile in investment banking. An analyst’s main roles involve creating financial models, performing a company analysis, doing due diligence, and creating pitch books, and punching data. You must have at least 1-year experience as an analyst before applying for the associate post.
- Associate: The main job roles of an investment banking associate are similar to that of an analyst except for the additional responsibility of acting as an intermediate between junior and senior bankers. You are required to be an associate for 3 or 4 years before being promoted to the post of Vice President.
- Vice President: The main job roles of an investment banking associate are almost similar to that of an analyst except for the additional responsibility of acting as an intermediate between junior and senior bankers. You are required to be an associate for 3 or 4 years before being promoted to the post of Vice President.
- Managing Director: Managing Directors are usually highly experienced candidates representing the firm in foreign countries and important meetings. He has the power to make all the strategic decisions of the company.
Unlike investment banking, there are no levels in corporate banking. Still, one can work in the following positions: –
- Loan Officer: A loan officer decides whether a client is eligible for a loan or not. He monitors the customer’s financial conditions and gives him the best suitable loan.
- Branch Manager: Major job roles of a branch manager are supervising employees, taking care of the smooth selling and delivery of financial services, and maintaining business relationships.
- Trust Officer: The main focus of a trust officer is areas like trust services, estate planning, taxes, investment, etc.
Compensation
Recent research shows that investment bankers earn more money than corporate bankers. For example, an analyst in investment banking can earn as much as $70,000 as their base salary. As an associate, your basic compensation would be $100,000. A Vice President would accumulate $250,000.
Entry-level jobs in the corporate banking sector will pay you $30,000 to $40,000 per year. However, having three years of experience can increase the compensation from $54,000 to $86,000.
Investment and Corporate Banking – Pros & Cons
Investment Banking Pros Cons Handsome pay Long working hours Limelight Cutthroat competition Steep learning curve Corporate Banking Pros Cons Flexible working hours Compensation is hard-earned Easy exit options No appreciation Defined career path https://firstutahbank.com/what-is-the-difference-between-banking-and-finance/https://www.wallstreetmojo.com/investment-banking-vs-corporate-banking/
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