What's the Difference Between a Commercial Bank and an Investment Bank?

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What's the difference between commercial banking and investment banking? 

When you hear commercial banking, think about your bank. 

But here's the main difference: Commercial banks lend to people, business and corporations.They're what you think of when you think of a normal bank. 

An investment bank is one that advises on investment transactions, like mergers and acquisitions, corporate financings like IPO's, normal equity raises, debt raises, or private equity buyouts of publicly traded or private companies.

Most of the major banks are both commercial banks and investment banks. JPMorgan Chase (JPM) - Get Report is one such example, as Chase and JPMorgan merged in the 1990's. 

Goldman Sachs (GS) - Get Report and Morgan Stanley (MS) - Get Report are primarily investment banks, but they also have lending businesses that serve large corporations and wealthy individuals. 

Bank of America (BAC) - Get Report -- Merrill Lynch is a commercial bank and an investment bank, with Merrill Lynch serving as the investment banking arm. 

Notice that Citigroup (C) - Get Report is called a 'group' rather than just a plain old bank. Citibank is just one business under Citigroup, which is also a huge investment bank. 

To see the rest of the various differences between these two types of financial institutions, watch the video above. 

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