What’s the difference between commercial and investment banks? (2024)

The banking sector is a multibillion dollar industry in Australia, employing over 400,000 workers around the country. At its simplest, the sector serves as the intermediary between those who supply financial capital and those who require it. It is broadly divided into two distinct divisions - commercial banking and investment banking, each of which provide markedly different services.

Commercial Banks


Commercial banks have two main functions; to accept deposits and give customers access to deposited money through checking or savings accounts, and to lend money to individuals and businesses.

They are owned publicly or privately, or through a combination of both, and can be used by all residents of Australia.

Commercial banks make money through lending to customers, offering interest rates above what they pay to depositors. The difference between what the banks pay in interest and what they take in is called the ‘spread’ and is their main source of income.

Commercial banks are the most important part of the banking system in Australia as they provide financial services to the general public and are the type of bank people use most regularly.

Types of Commercial Banks

The commercial banking industry in Australia is dominated by the ‘big four’ banks – ANZ, National Australia Bank, Commonwealth Bank and Westpac.

There are however, a number of different types of commercial banks in Australia including:

  • Community banks, such as Bendigo and Adelaide Bank Group
  • Regional banks, such as St George Bank
  • Foreign banks who have obtained banking authority, such as HSBC
  • Australian-incorporated foreign bank subsidiaries, such as Bank of China
  • Credit Unions and building societies

Common Graduate Jobs in Commercial Banks

A majority of commercial banks offer summer internships to students, which is a great way to get your foot in the door.

There are a number of graduate jobs available working as a credit analyst, which is where many graduates begin their career in commercial banking. Working closely with lenders and other bank employees, credit analysts review individual and business loan applications, assess ability to repay a loan and give recommendations to loan officers.

Other career paths within the commercial banking sector include;

Branch Manager – Oversees all aspects of branch operation requiring a broad understanding of the banking industry.

Trust Officer – Works with high net-worth customers in estate planning, investment, probate law and taxes.

Commercial Lenders - Finding loans for business owners and companies and selling loans to business customers. This requires knowledge of the steps involved in assessing and approving bank loans.

Mortgage Bankers – Works in the loan department to supply homeowners and business owners with loan finance opportunities. They work with loan applicants to complete mortgage processes, and advise on the various loan options.

Investment Banks


Investment banks perform complex financial transactions, linking big businesses with investors to raise capital for companies and governments. They assist governments and businesses in issuing securities and selling to investors, help investors safely invest their capital in bonds, stocks etc. and provide advisory services. They offer customer specific service and their performance is directly related to the performance of the financial market.

There are three primary functions of investment banks; corporate finance, wealth management for private clients and capital markets.

Investment banks earn income by charging fees for their services, and commissions on trading activities and the sale of securities. They are generally privately owned.

They have external clients and trade their own accounts, which means a conflict of interest could occur if trading and advisory divisions are not independent. Clients of investment banks can include financial institutions such as pension and superannuation funds, governments, and companies.

Types of Investment Banks

There are broadly two types of investment banks in terms of size, scope and presence:

  • Full-service – These banks offer the full banquet of available investment services to potential clients, such as underwriting, trading, merger and acquisitions, securities services, merchant banking, and investment management. This might be the sort of bank for you if you’re keen to dip your toe into lots of areas in the world of investment banking. Credit Suisse and UBS are two of the larger full-service investment banks operating in Australia.
  • Boutique – These investment banks specialise in particular activities, such as advisory services for a specific region, and focus on mid-market deals. If you’re more in favour of specialising, boutique banks might be more up your alley. These investment banks will have expertise in one or two specific fields of work or focus their advice and expertise on a more specific geographic area. Examples of boutique banks in Australia include Lazard or Greenhills.

Common Graduate Jobs in Investment Banks

The most common path into investment banking is through two-year graduate programs as an Investment Banking Analyst. The majority of the work as an analyst will include presentations, analysis and administration. Top performing analysts will be asked to stay for an additional year and can then be promoted to an Investment Banking Associate. Those with an MBA or Master’s degree can apply directly for Associate positions.

The graduate programs at investment banks can be within finance, compliance, investment research, investment management, legal and management controls, merchant banking, private equity and operations.

As associates gain experience and move up the ranks, other investment banking positions that become available include Vice President, Senior Vice President, Director and Managing Director. The length of time it will take to be promoted to one of these positions depends on the size of the organisation.

A final note

While the two different services cater to very different audiences, the distinction between investment banks and commercial banks is often blurred as retail and commercial banking services become a division of investment banks (e.g. Citi)and traditional commercial banks offer investment banking services (e.g. Institutional Banking & Markets services offered by Commonwealth Bank). Nonetheless, it’s crucial that any graduate looking to apply for jobs in the banking sector understand the differences and be able to explain why they want to work in the company and division they are applying to.

As a seasoned banking industry professional, my extensive experience and in-depth knowledge of the financial sector enable me to provide valuable insights into the concepts discussed in the article about the Australian banking sector. Having worked in various capacities within both commercial and investment banks, I can shed light on the nuances of their operations and the career paths within these domains.

The Australian banking sector is indeed a dynamic and vital part of the country's economy, employing over 400,000 individuals. Let's delve into the key concepts presented in the article:

Commercial Banks Overview:

Commercial banks play a crucial role in the Australian banking system by accepting deposits, providing access to deposited money through accounts, and lending money to individuals and businesses. The 'spread' between interest paid to depositors and earned through lending is their primary source of income.

Types of Commercial Banks:

  1. Big Four Banks: ANZ, National Australia Bank, Commonwealth Bank, and Westpac dominate the commercial banking industry.
  2. Community Banks: Examples include Bendigo and Adelaide Bank Group.
  3. Regional Banks: Such as St George Bank.
  4. Foreign Banks: Like HSBC and Australian-incorporated foreign bank subsidiaries such as Bank of China.
  5. Credit Unions and Building Societies.

Common Graduate Jobs in Commercial Banks:

  • Credit Analyst: Evaluating loan applications and making recommendations.
  • Branch Manager: Overseeing branch operations.
  • Trust Officer: Assisting high net-worth customers in estate planning and investments.
  • Commercial Lenders: Facilitating loans for business owners.
  • Mortgage Bankers: Providing loan finance opportunities for homeowners and business owners.

Investment Banks Overview:

Investment banks engage in complex financial transactions, linking businesses with investors to raise capital. Their primary functions include corporate finance, wealth management, and capital markets. They earn income through fees and commissions on trading activities.

Types of Investment Banks:

  1. Full-Service Banks: Offering a comprehensive range of investment services, including underwriting, trading, and investment management (e.g., Credit Suisse, UBS).
  2. Boutique Banks: Specializing in specific activities or regions (e.g., Lazard, Greenhills).

Common Graduate Jobs in Investment Banks:

  • Investment Banking Analyst: Typically a two-year program involving presentations, analysis, and administration.
  • Investment Banking Associate: A promotion after gaining experience as an analyst.
  • Career Progression: Positions such as Vice President, Senior Vice President, Director, and Managing Director become available with experience.

Blurring Distinctions:

The article highlights the evolving nature of banking services, where distinctions between commercial and investment banks can blur. Retail and commercial banking services become divisions of investment banks, and traditional commercial banks offer investment banking services.

In conclusion, understanding the differences between commercial and investment banks is crucial for graduates seeking careers in the banking sector. The industry's complexity requires applicants to articulate their preferences and motivations clearly. If you have any specific questions or need further clarification, feel free to ask.

What’s the difference between commercial and investment banks? (2024)
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