Corporate banking and the capital market serve as a source of capital management for clients needing funds or money to accomplish their purpose. There are quite a few differences in their strategies and services, differentiating them in many ways.
Key Takeaways
- Corporate banking refers to a range of financial services commercial banks offer corporations, including lending, trade finance, and cash management. In contrast, capital market refers to a market where long-term securities such as stocks and bonds are traded.
- Corporate banking focuses on providing financial solutions to clients to help them meet their financial goals and objectives. In contrast, the capital market focuses on buying and selling securities to raise capital for corporations.
- Corporate banking deals with short-term financial needs, while capital markets deal with long-term ones. Corporate banking is considered less risky than the capital market.
Corporate Banking vs Capital Market
Corporate banking refers to the services and products banks offer to large corporations and businesses. Capital market refers to the marketplace where securities, such as stocks and bonds, are traded and raised. Corporate banking services may include financing, investment banking, and cash management. Companies use the capital market to raise capital for growth and expansion.
Corporate banking, or business banking or corporate financing, focuses on providing and helping companies or businesses with banking services and minimizing their financial risks.
Some services include issuing loans, setting up portfolios, finance trading, employer services, etc.
The capital market is a medium of capital flow. Capital markets are comprised of suppliers and users of funds. It includes selling equities like stocks, shares of a company, and other financial products. Capital markets are divided into two, namely primary and secondary markets.
Comparison Table
| Parameters of Comparison | Corporate Banking | Capital Market |
|---|---|---|
| Definition | In corporate banking, commercial banks provide unique finance solutions to businesses that help the corporation achieve its target goals. | The capital market is the medium of channelling savers’ funds to those who can use the funds for a productive cause. |
| Services provided | Loans and various other credit products, cash management services, employer services, and lending some equipment. | Investment management services, lending services, sales and trading of equity, research and consulting services |
| Benefactors | They are beneficial to corporations for the allocation of finances and strategizing capital structure. It is a venue for the exchange of equities in demand and supplier. | It is a venue for the exchange of equities in demand and supplier. |
| Advantage | New under-developed businesses can have unlimited help from them to develop and rise in the corporate world. | Capital demand and investors have a specific platform for exchange in various entities. |
| Disadvantage | They 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 developing businesses, helping their financial requirements, and paving the way for risk-free development, 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 interest rate than other essential loans as the risk in those loans is relevantly higher than others.
Treasury services- treasury services help manage any business’s working capital. As multinational companies must convert their capital into different currency forms, treasury services were essential then. These services smoothly operate all the activities of capital conversion.
Professional commercial services- for the better development of the leading businesses, banks appoint professionals who complete analyses for the corporation, like analysis of the 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 confuse investment banking with corporate banking, but they are different concepts. There are many significant differences between both. They have additional terms and conditions.
What is Capital Market?
The capital market is a platform that makes the exchange of capital possible for the demanding and investing parties. It provides means to the ones who need them and already have the money so that the sale of entities can be possible. It is divided into two major categories:
- Primary markets
- Secondary markets:
It includes the Stock market, the bond market, and the currency and foreign exchange market. The capital markets are the most typical consist of stock and bond markets. In primary markets, new stocks and bonds are sold.
Primary market facilities are offered only to specific investors who directly buy stocks and securities from the company or the firm selling it. These offerings are recognized as initial public offerings, also known as IPOs.
The primary market offers to buy new equities and bonds. In secondary markets, the existing securities already issued for a long time are sold to investors.
Financial companies more involved in the private sector than the public sector also come under the capital market.
Main Differences Between Corporate Banking and Capital Market
- Corporate banking provides services to businesses for reaching their desired goals in many possible ways, whereas the capital market provides a venue for exchanging capital.
- Corporate banking provides loans, cash management services, or lending of some types of equipment, whereas the capital market offers a medium of exchange for different entities.
- The principal benefactor of corporate banking is start-ups or MNCs or business holders, whereas in the capital market, i.e., investors who need capital for some purpose.
- Corporate banks can be proven very helpful to the corporate world, whereas the Capital market can help those in need and those who want to sell their entities.
- Corporate banks ask for high interest in exchange for their services, whereas the capital market is risky for investors as its vulnerability relies on many factors.
- https://books.google.com/books?hl=en&lr=&id=_MOM7iVkNRcC&oi=fnd&pg=PR1&dq=corporate+banking+and+capital+markets&ots=0wfTo4S4on&sig=uP4Q1RgeoLjjcfyRFm3Dttrlk78
- https://academic.oup.com/rfs/article-abstract/24/2/358/1582796
- 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
Last Updated : 11 June, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
I think the article could have provided more examples to illustrate the differences, it feels a bit theoretical.
I agree, some real-life examples would have been helpful.
Great explanation of the differences between corporate banking and the capital market. Really informative!
It’s always good to learn more about the financial world.
I agree, very well explained and detailed.