Banks

Retail Banks

• High Street banks
  • HSBC
  • Barclays
  • Lloyds

Retail bank model

Consumers put savings / deposits into the bank. As a reward for this, they get an interest rate of 3%.

The retail bank then gives out loans / mortgages / credit cards, lending out that money at a higher interest rate than they gave to the consumer.

The retail bank earns money by acting as an intermediary between lenders and borrowers.

Investment Banks

A financial institution undertaking financial advisory work.

• JP Morgan

• Goldman Sachs

• Help companies raise finance by selling shares or bonds

• Trade in shares, bonds and other financial assets

• Advise on mergers and Corporate Restructuring

Many banks have Retail and Investment branches.

Systemic Risk

The potential for failure or distress from one large banks to trigger the collapse of other large banks and the entire financial system.

There is systemic risk from banks lending to each other (Money Markets) since a bank may not repay debt to another bank, which the other bank requires to continue operation.

Bank Balance sheet