Private banks serve a select clientele, while commercial banks have a wider customer base. Private banking is characterised by highly personalised services that typical customers may not need. These services include investment portfolio management, tax advisory services and estate planning. Many commercial banks also offer private banking services to wealthy customers, but their business model emphasises services for small and mid-size companies and major corporations.
Two examples of classic private banks are located in London and New York. Coutts & Co. in London was founded in 1692 and today is a part of the Royal Bank of Scotland Group. In New York there is Brown Brothers Harriman & Co., a privately held partnership that was founded in 1931 in New York with the merger of two firms, one of which was founded in 1818. There are many true private banks in Switzerland and other financial centres.
Private Bank Services
A good way to grasp the difference between private banking and commercial banking is to think of air travel. There is first class for the wealthy traveller, and there is coach for the rest of us. Private banks concentrate on wealth management and other special services for high net-worth individuals and their families. These customers are willing to pay extra fees and maintain high bank balances in return for expert assistance that meets their needs. Typical private banking services include personalised banking services, estate planning, tax and other advisory services, investment portfolio management and the use of private banking offices (for example, not having to stand in line in a bank lobby). Other services can include expert art acquisition assistance, charitable giving advice and special seminars.
Commercial banks, such as Citibank, offer loan, investment and deposit services to businesses of all sizes as well as consumers, government entities and other organisations. Many have a presence worldwide, and others serve local and regional markets. The shares of these banks are publicly traded, and they are required to be chartered by state or federal authorities. Their business model is based on volume from many company and consumer customers. Commercial banks usually offer personal and business trust services. Some also attempt to tap the market for private banking clients by operating private banking departments.
Commercial Bank Services
Commercial banks specialise in serving the credit, investment and other financial needs of businesses of all sizes -- from sole proprietors to major corporations as well as professional firms, government entities and other organisations. Commercial banks can provide credit facilities of all kinds: lines of credit, revolving credits, term loans, letters of credit and credit cards. Beyond credit services, these banks also offer investment, trust and insurance products. Commercial banks typically have large consumer banking departments and provide loans, savings, home loans and current account services for individuals and families.