Choosing Between Investment Banking and Commercial Banking

If you have your sights set on a career in banking, there is a major decision you need to make: investment banking or commercial banking. While both involve banking and finance, they differ when it comes to day-to-day responsibilities, work-life balance, and more. If you’re a college student trying to solidify your career goals, here is a breakdown of the main differences between investment and commercial banking. 

Investment Banking

In summary, investment banks work on raising capital for their clients through investments, and they also manage large financial transactions, such as mergers and acquisitions. 

If you’re interested in this path, the best degrees to have include Finance, Economics, Applied Math, and Statistics. You may also want to pursue an MBA. These degrees will provide you with the knowledge needed to navigate a role in the industry. 

One of the main responsibilities an entry-level analyst can expect to have is financial valuation and modeling. This is where you’ll build models to determine what a company is worth and also simulate how a large transaction, such as a merger, would impact the company’s financial outlook. You can also expect to spend time creating marketing pitches that will be used by more senior employees when trying to persuade a potential client to hire their services. Working with documents is also a large part of the role, including gathering client documents and performing due diligence. 

Over the next 10 years the industry is expected to grow, with a predicted 7 percent growth in financial analyst positions from now to 2035. This is good news for students as there will be more roles that need filling.

Investment banking is notorious for having long hours and a long list of responsibilities. It’s typical for junior analysts to work 70-80 hours a week, including weekends, especially during major transactions. This is something to take into consideration when deciding your career path. However, even with long days and weeks, it’s still possible to find work/life balance. Firms are always making an effort to support their employees in this area. Check out the Vault Banking Rankings to see the firms with the top work/life balance. 

Commercial Banking

In a general sense, commercial banks provide financial services to small, midsize, and large businesses, as well as individuals. This includes providing checking accounts, treasury management, and commercial loans. 

For a career in commercial banking, the best degrees to have include Accounting, Finance, Business Administration, or a specialized major, such as Real Estate or Agribusiness. Each degree can lead to a different specific role within commercial banking, but as a whole, these degrees are the most useful. 

Potential entry-level roles include credit analyst, commercial banking analyst, and junior underwriter. Credit analyst roles involve taking a wide range of financial documents and inputting them into a model to determine the client’s current financial picture, and determining if the client generated enough profit to pay off their loan. A commercial banking analyst can expect to work on pitch decks, perform due diligence, and serve as the primary contact for the client when it comes to collecting documents. They also work closely with senior relationship managers who bring in new clients. A junior underwriter focuses on risk assessment and loan approval. This includes drafting credit approval memorandums, performing risk assessments, and reviewing documents to determine if the offered loan can realistically be repaid. They produce a report that highlights the reasons a loan should be offered, along with any conditions they think should be in place. 

The commercial banking industry’s growth is smaller compared to investment banking, with only a 1 percent increase in loan officer positions predicted from now until 2035. With smaller growth, the job market in this industry could become more competitive. 

The hours you can expect to work in commercial banking are the standard 9 to 5, with approximately 40-to 45-hour weeks. Working on the weekend is very rare, making work/life balance very attainable. There is also a sense of predictability with standard business hours and deals happening at a reasonable pace instead of at a high intensity. 

Both types of banking have their pros and cons. At the end of the day, pick the path that best aligns with your values and what you want to achieve in your career.