Difference Between Corporate Banking and Capital Market (With Table)

Corporate banking and the capital market both serve as a source of capital management for the clients in need of funds or money to accomplish their purpose. There are quite a few differences in their strategies and services, which differentiates them from each other in many ways. 

Corporate Banking vs Capital Market

The main difference between corporate banking and capital market is that corporate banking typically provides several banking services to local business holders of every category ranging from small to large-sized business whereas in capital market capitals flow from the investors who want to invest in capitals and suppliers to the people who need the capital for personal or any other use. 

Corporate banking, also known as business banking or corporate financing, basically focuses on providing and helping companies or businesses with banking services, minimizing their financial risks. Some of the services include issuing loans, setting up portfolios, finance trading, employer services, and many others.

The capital market is a medium of capital flow. Capital markets are comprised of suppliers and users of funds. It includes the selling of equities like stocks, shares of a company, and other financial products. Capital markets are divided into two, namely primary and secondary markets.

Comparison Table Between Corporate Banking and Capital Market

Parameters of ComparisonCorporate BankingCapital Market
DefinitionIn corporate banking, commercial banks provide some special finance solutions to the businesses that help the corporation achieve its target goals.The capital market is the medium of channeling the funds of savers to those who can make use of the funds for the productive cause.
Services providedLoans and various other credit products, cash management services, employer services, lending some equipment.Investment management services, lending services, sales and trading of equity, research and consulting services
BenefactorsThey are beneficial to the corporations for allocation of finances and for strategizing the capital structure It is a venue for the exchange of equities in demanding and supplier.It is a venue for the exchange of equities in demanding and supplier.
AdvantageNew Businesses that are under-developed can have unlimited help from them to get developed and rise in the corporate world.The capital demanding and investors have a specific platform for exchange in various types of entities.
DisadvantageThey have to pay higher taxes because of higher risk factors for services.It is risky to invest in the capital market. It is common to gain and lose millions of value in the capital market.

What is Corporate Banking?

Commercial banks and other financial institutions have been providing specialized services for the development of businesses, helping their financial requirements and paving a way for risk-free development which is known as corporate banking. There are various services included under corporate banking. 

Loans- the banks provide loans and other related products to the corporate clients but at a higher rate of interest in comparison to other basic loans as the risk in those kinds of loans is relevantly higher than others. 

Treasury services- treasury services help in managing the working capital of any business. As multinational companies require to convert their capital into different currency forms, at that time treasury services are very important. These services smoothly manage all the activities of capital conversion.

Professional commercial services- for the better development of the leading businesses, banks appoint professionals who make complete analyses for the corporation like analysis of portfolio, leverage, assets of the company, debt and equity flow, and many others. The professionals make inferences from the data and advise what’s best for the company.

People often confuse investment banking with corporate banking but they are different concepts. There are many major differences between both. They have different terms and conditions.

What is Capital Market?

The capital market is a platform that makes the exchange of capital possible in the demanding and investing parties. It provides capital to the ones who need them and who already have the capital so that the exchange of entities can be possible. It is divided into two major categories:

  1. Primary markets
  2. Secondary markets:

It includes the Stock market, the bond market, and the currency and foreign exchange market. The capital markets are the most common consist of stock and bond markets. In primary markets, the new stocks and bonds are sold. Primary market facilities are offered only to specific investors, those who directly buy stocks and securities from the company or firm selling it. These offerings are recognized as initial public offerings also known as IPO’s.

The primary market offers to buy new equities and bonds. In secondary markets, the existing or securities which are already issued for a long time are being sold to investors. 

Financial companies who are more involved in the private sector more than the public sector also come under the capital market.

Main Differences Between Corporate Banking and Capital Market

  1. Corporate banking provides services to the business for reaching their desired goals in many possible ways whereas the capital market provides a venue for the exchange of capital.
  2. Corporate banking provides services like loans, cash management services, or lending of some types of equipment whereas capital market provides a medium of exchange of different entities.
  3. The main benefactor of corporate banking is start-ups or MNC’s or business holders whereas in the capital market i.e. investors and who need capital for some purpose.
  4. Corporate banks can be proven very helpful to the corporate world whereas the Capital market can help those who are in need and those who want to sell their entities.
  5. Corporate banks ask for high interest in exchange for their services whereas the capital market is risky for the investors as its vulnerability relies on many factors.

Conclusion

Both of these financial bodies have differences and importance as they are planned and implied. They both are doing well in their field of purpose. In the end, it is a coin of exchange. If anyone is providing something there will be a demand too. Does it depend on the person’s need that will it be worth it? Take decisions on point after thinking and considering every fact and perspective for having a better chance to get what is best for you and your needs. Which scenario is perfect for your requirements.

References

  1. https://books.google.com/books?hl=en&lr=&id=_MOM7iVkNRcC&oi=fnd&pg=PR1&dq=corporate+banking+and+capital+markets&ots=0wfTo4S4on&sig=uP4Q1RgeoLjjcfyRFm3Dttrlk78
  2. https://academic.oup.com/rfs/article-abstract/24/2/358/1582796
  3. https://books.google.com/books?hl=en&lr=&id=8eOaDwAAQBAJ&oi=fnd&pg=PT18&dq=corporate+banking+and+capital+markets&ots=yKuD9TUY8E&sig=xv5VoLGOs3kzBiSIwJ-CKw4IUlc
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