The Structural Evolution of Banks – Finance


Commercial banks whose (simplified) activity was to collect resources for lending.
Investment banks that provided advice (in mergers and acquisitions, asset management) and played an intermediary role (for the placement of bonds or shares), but without using their balance sheet.

In the 90s,

with the regulatory evolution and internationalization of finance, the banks are organizing major structural changes, particularly in the United States and Europe. There are reconciliations of several commercial and business banks BNP / Paribas, Citicorp / Travelers Group, Chase Manhattan / JP Morgan or Merrill Lynch / Bank of America.

A large majority of banking groups now report the following business segments:

Retail banking

Retail banking is aimed at individuals and small and medium-sized businesses. Their main role is the intermediation between the over-funding agents whose cash it collects and the agents in need of financing to whom it lends this liquidity.

It has millions of clients and a large number of loans to reduce the risk (law of large numbers: all borrowers can not default at the same time)

Its business is highly competitive and its margins (after taking into account overheads and the cost of risk) are low. As the bank loan is standardized, customers compete. Thus, to strengthen their added value, banks offer various products and services to their customers (consumer credit, leasing, factoring, business assistance, insurance, etc.)

The investment and financing bank

The investment and financing bank

(which offers sophisticated services to large companies)

It offers its thousands of customers the following services:

Access to the stock market: assistance for IPOs, then capital increases or other derivatives (share warrants, convertible bonds …)

Access to the bond market: assistance to medium and large companies to raise debt with investors.

Consulting in merger and acquisition and access to bank financing …

The asset management bank

The asset management bank

It manages the assets of its clients (institutional investors and wealth management). It works through SICAV or FCP for clients of the bank details and uses certain products of the investment bank (cover, execution of orders …)

=> Beside these universal banks, some players have privileged the specialization on a limited number of activities such as merger acquisition and asset management (Lazard, Rothschild …) or on a geographical area (Mediobanca …)


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