Investment oriented banks may also be specialized or diversified An example of

Investment oriented banks may also be specialized or

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Investment-oriented banks may also be specialized or diversified. An example of “specialized investment-oriented banks” are investment boutiques. They usually focus on one or a small number of areas of investment products or on a specific group of wholesale customers. Depending on their specialization, they offer a variety of services. For example, while some banks may act as investment advisors, others may specialize in trading in certain assets or commodities. This contrasts with “diversified investment-oriented banks,” which offer a broad range of products that includes underwriting, mergers and acquisitions (M&A), merchant and corporate banking, investment management and trading with different types of wholesale Retail-oriented Investment-oriented Specialized Focus on a specific group of retail customers (e.g., consumers, car buyers and small enterprises) Typically provide standardized retail products (e.g., consumer credit and car loans) Interest income is the most important source of income (non-interest income often unimportant) Customer deposits are the primary source of funding (wholesale funding unimportant) Focus on one or a small number of investment products or on a specific group of wholesale customers Non-interest income much more important than for retail-oriented banks Primarily wholesale-funded (customer deposits unimportant) Diversified Provision of a broader range of differentiated retail products and services (e.g., loans, mortgages and financial advisory) to different types of retail customers Interest income is the most important source of income; non-interest income usually more important than for specialized retail banks; more diversified income structure More diversified funding structure, but customer deposits still most important source of funding Provision of a broad range of products that includes underwriting, M&A, merchant and corporate banking, investment management and trading to different types of wholesale customers Non-interest income much more important than for retail-oriented banks (more diversified income structure than specialized investment- oriented banks) More diversified funding structure, but wholesale funding still the most important source of funding Table 1: Systematization of business models in banking Source: The table systematizes banks’ business model based on their products and the customers served (retail- versus investment-oriented banks) and the degree of specialization (specialized versus diversified).
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6 The Journal of Financial Perspectives Business models in banking – how did they evolve and how do they need to be changed in the post-crisis period? customers. Because of the services provided, investment-oriented banks generate a significantly larger share of their operating income from non-traditional activities than retail-oriented banks.
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