The banking sector has played a major role in the modern economy since its introduction during the commercial revolution of the 17th century, providing the basic infrastructure that underlies most economic activity. While the banking sector may appear at times to be largely homogeneous, this is far from the truth, with many specialisations existing within the industry. The difference between corporate and commercial banking is largely the difference between the customers being served.
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Commercial banking usually describes banking that is focused on the average consumer. These are mostly the services provided by any local savings and loan bank. Checking and savings accounts, as well as personal and small business loans, make up the core activities of commercial banking.
Corporate banking is generally used to describe those banking activities that deal with large businesses and corporations. Large-scale loans to businesses and major investments make up the largest part of this activity. Many large businesses would be unable to operate without the ready credit supplied by corporate banking. Corporate bankers issue short-term debt to large businesses in the form of "commercial paper," without which many businesses would be unable to operate and perform day-to-day operations.
The federal government has come to play an extensive role in the activities of both corporate and commercial banking. Through the Federal Deposit Insurance Corporation, the federal government directly insures the money placed in every personal banking account. The federal government has been involved in the large-scale bailout of many banks to avert economic crisis. A system of regulation exists to regulate activities in both corporate and commercial banking.
As the modern economy has become more global in nature, corporate banking has followed suit and become very much a part of an international network of investment and trade. Commercial banking has been much slower to follow this trend as consumers continue to prefer their local banks. The average consumers are much more likely to trust a bank that they are already familiar when it comes to securing their own personal savings.
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- "New York Times"; Making Banking Boring; Paul Krugman; April 2009
- "New York Times"; Banking on the Brink; Paul Krugman; February 2009
- "New York Times"; Shift for Goldman and Morgan Marks the End of an Era; Andrew Ross, Vikas Bajaj; September 2008
- "Time Magazine"; Private Banking -- Old-School Rules; Adam Smith; April 2008
- "The Guardian"; Personal Banking Explained; August 2010
- "Atlantic Monthly"; Lunatic Idea of the Week; Megan McArdle; March 2009