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committees. The analysis of advantages and drawbacks of separation will be concluded with
very general reflection on current regulatory response, promoting (in a very limited scope
however) divergence of combined nowadays activities.
Expected conclusion of the paper is that at least partial and even only functional separation of
commercial and investment banking activity is inevitable.
Commercial banks vs. Investment banks: definitional aspects
For centuries of human history, banks have taken a long journey from very simple goldsmith
workshops to extremely complex, multifunctional financial institutions. The contemporary
banking systems are commonly characterized by a variety of criteria. One of the prominent are
types of banking entities. Due to general functional classification one can distinguish corporate,
investment and universal banks. Regarding animated discussion carried for recent years that
classification raised to exceptional role. Commercial bank provides services including offering
current deposit and saving accounts as well as giving out loans to mostly nonfinancial entities
like businesses, organizations and individuals. Other services include credit cards, private
banking, custody and guarantees, cash management and settlement as well as trade finance.
Commercial banks make their profits typically by taking small, short-term, relatively liquid
deposits and transforming them into larger, longer maturity loans. This process of asset
transformation generates net income for the commercial bank. For decades the paradigm of
public trust has been promoted for commercial banks. That makes them especially responsible
for savings deposited on banking accounts. Even though most of banking creditors *Frączek
2015] are aware that deposited money are any more secured in banking vaults, and are
transferred into risky loans, and facilitated by other parties, however they want their
receivabilities to be fully secured. Bank’s management has to look after public trust as for the
most precious asset. Otherwise, any rumors could trigger the avalanche effect and instability of
whole banking system. That would be destructive not only for banks and their customers, but
also for whole economy. That is why, systemic precautionary measures are undertaken to
promote banks stability. One of the most important is deposit guarantee system. The cost of
establishing it burdens bank’s shareholders and state treasury. In their interest is therefore
limiting the scope of the risk undertaken by banks. The term “commercial bank” gained
outstanding prominence as a counterpart to “investment bank”, that is a bank with a wide
range of specialized services for companies and large investors. They include underwriting,
advising on securities issues and other forms of capital raising, mergers and acquisitions,
trading on capital markets, research and private equity investments etc. Whilst commercial
banking relates to deposit-taking and lending, investment banking is predominantly a securities
business. Whilst commercial bank’s performance was very much linked to economic growth
and credit demand, investment bank’s performance is strongly influenced by stock market
performance. Commercial banking is then viewed as relatively less risky than the more volatile
investment banking business.
Both, commercial and investment activities, are incorporated in an universal bank - financial
service conglomerate combining retail, wholesale and investment banking services under one
roof gaining from synergies between them. Also many commercial banks do investment
business although the latter is not considered the main activity area. The key issue is that they
would benefit from economies of scale and diversification. But on the other hand, the key
question is, how – by default – more risky investment activities disrupt the profile of a bank, as
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