Investment Banks and Regular (Commercial) Banks / the big Difference

Strange as it may seem, many people around still confuse investment banks with regular banks. It is worth spending a few minutes on reading this little article to find out key differences. The banks we deal most daily are regular banks which in "book terms" should better be called commercial, retail or merchant banks (there might be some differences depending on a certain country's legislation but in a beginner's point of view there's no need in learning all aspects). Commercial banks' main business is making profit from loans and holding our deposits. A commercial bank usually lends money out to us by loans which we use to fulfil our certain needs. Loans can be given both by cash or by a product (example: when we buy a car from a dealer, we might not even see and hold the money as it is usually transferred from bank to the dealer's account although we put our signature on papers as the borrower). Holding deposits is another business of a commercial bank as it helps to find money for borrowers' loans. That is simply how it works: 

deposits are usually frozen for a certain period of time and the client can not take his money back due to contract terms. In some cases he may have his money back but without any interest. So usually people don't touch their deposits for a certain period of time. At this time, clients' money is used for giving out loans to other people but with a higher interest. This way the bank makes most of the profit. There are of course complementary services like credit cards, money transferring services, checking and etc. But these usually bring less profit than holding deposits and giving out loans.

An investment bank on the other hand is a completely different financial institution. Application to an investment bank usually takes place when a certain company wants to raise money without a direct appeal to a commercial bank (i.e borrowing). The process begins by issuing bonds or stocks in capital markets. The investment banker in this particular case, helps the company by buying its stocks and reselling them to parties interested in investing (examples: pension funds, individual investors, etc). The bank gives the company necessary funds and takes risks of owning the yet profit-unknown securities. This very process called "underwriting securities" is quite risky as the investment banker may not be able to sell these securities later, which would only cause severe money loss. There are other services provided by investment banks too (example: merger deals and etc.) but the information given above is enough to understand the main difference. There is no need to fill your brain with information you won't ever need. Once again to be short, an investment bank is a financial institution that assists corporations, governments or individuals in raising funds by underwriting or providing services as the client's agent in issuing securities.

A good example of monster investment banks is (some left in past after 2008 crisis):

Goldman Sachs
Lehman Brothers
Merrill Lynch
Bear Stearns
JP Morgan
Morgan Stanley
Bank of America
Deutsche Bank

History and operation of these banks are definitely worth searching Google and devoting some time to read. Good films to watch on these investment banks and the 2008 crisis are the "Too Big to Fail" movie and the "Inside Job" documentary.

Good luck!