Topic 14

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November 29th, 2012
Finance 3680
Term Paper: Topic 14 Impact of the Credit Crisis on Commercial Banks vs Securities Firms

COMMERCIAL BANKS
A commercial bank (or business bank) is a type of financial institution and intermediary. A financial institution that lends money and provides services, such as accepting deposits, giving business loans and auto loans, mortgage lending, and basic investment products like savings accounts and certificates of deposit. The traditional commercial bank is a brick and mortar institution with tellers, safe deposit boxes, vaults and ATMs. However, some commercial banks do not have any physical branches and require consumers to complete all transactions by phone or Internet. In exchange, they generally pay higher interest rates on investments and deposits, and charge lower fees. Commercial banking activities include underwriting, acting as an intermediary between an issuer of securities and the investing public, facilitating mergers and other corporate reorganizations, and also acting as a broker for institutional clients. Some commercial banks, such as Citibank and JPMorgan Chase, also have investment banking divisions, while others, such as Ally, operate strictly on the commercial side of the business.

SECURITIES FIRMS
Securities firms are a stock broker's business. They charge a fee to act as intermediary between buyer and seller. Securities firms include firms whose principal lines of business are in securities brokerage, financial advisory services, investment banking and/or securities trading. Investment management may be a line of business among these firms, but not the dominant line. Securities firms do not issue securities, but rather trade them in the open market. The securities’ side of the business can only pair buyers with the new stock being brought to market, while the investment banking division actually issues the new stock. Securities firms primarily exist to facilitate, buy, and sell transactions between individual investors. There are many securities firms active in today’s market. Ameritade is a leading discount and online securities brokerage firm that is a subsidiary of TD Bank Financial Group. Charles Schwab was one of the first discount brokerage firms and continues to be a leader in this market space. Schwab has expanded into related lines of business and has added a network of branch offices. Goldman Sachs is possibly the most prominent firm on Wall Street. They are strong in investment banking, asset management and high net worth client services. Edward Jones offers a business model that reassures single advisor offices with a lot of independence. JPMorgan is the securities division of JPMorgan Chase, parent company of Chase Bank, formerly Chase Manhattan Bank. Morgan Stanley combines retail brokerage, money management, investment banking and securities trading. The addition of Smith Barney greatly increases its brokerage footprint, originally the result of a 1997 merger with Dean Witter. Smith Barney was the securities industry division of banking giant Citigroup, parent company of Citibank. This division is now Morgan Stanley Smith Barney. Morgan Stanley Wealth Management, formerly called Morgan Stanley Smith Barney, was formed by Citigroup's spinoff of its Smith Barney brokerage division to Morgan Stanley. The combined firm has the largest force of financial advisors in the industry. Wachovia Securities was a joint venture of Wachovia Bank (62%) and Prudential Financial (38%), improved in 2008 by the acquisition of A.G. Edwards. It was bought by Wells Fargo later in 2008. In September 2009 Wachovia Securities was renamed Wells Fargo Advisors, in recognition of its new corporate parent.

CREDIT CRISIS
It began when large numbers of people decided that real estate, which still hadn’t really recovered from the early 1990’s decline, had become inexpensive. During that time, Wall Street was making it easier for buyers to get loans. It was...
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