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Commercial Banking

Overview

The banking industry is a global, multibillion dollar business that serves as a middleman, or intermediary, between suppliers of financial capital and those seeking financing. Broadly speaking, it provides financing for a wide range of consumer and business activities. The stated purpose may be financing the purchase of a home or providing startup capital for a new business venture. While the banking industry operates according to regional, or nationally defined, rules and customs, the business is most often broken out into two distinct industry groupings: investment banks and commercial banks (which will be covered in this article).

Commercial banks make loans to the full spectrum of borrowers, from private individuals, all the way up to major corporations, and municipal, regional, and national government agencies. Commercial banks, a grouping that also includes savings banks and credit unions, finance their loan activities by lending out money gathered from the other side of the business—the funds deposited by individuals and firms.

Banking in the 21st century is in reality a series of interconnected businesses. The biggest banks in the world have grown to become complex, multi-market organizations serving a very diverse group of customers. Major commercial banks, in addition to their lending services, also offer cash management services such as money transfers and account reconcilement, asset-based financing, and equipment leasing. They issue letters of credit supporting global trade. They offer credit card and payment card services to both individual consumers and retail merchants.

Banking as a business is highly sensitive to market cycles. Demand for bank loans is closely tied to economic activity and interest rates. Banks offer customers different banking services to attract deposits [transaction accounts, savings and time deposits (CDs), money market accounts]. Bank deposits are the financial backing for bulk loans to consumers, businesses, and government agencies.

Banks and savings institutions heavily promoted low-cost adjustable rate mortgage loans during the housing boom years in the early 2000’s, only to find themselves saddled with a mountain of bad debt when the housing bubble finally burst in 2008. Deep exposure to subprime loans caused numerous bank failures, resulting in government bailouts and shotgun marriages of some of America’s largest banks.

The global financial crisis of 2008-2009 substantially altered the competitive landscape of both commercial and investment banks, putting a premium on risk controls and efforts to stay abreast of some new sets of complex financial market regulations. Over the last several years the distinctions between the largest commercial banks and investment banks have become less obvious, because of deregulation of the financial sector. The very largest banks in either category compete directly with one another in private placements, project finance, bond underwriting, and financial advisory services. That’s a game for only the largest financial institutions. The majority of the 6,650-plus U.S. commercial banks are community-focused lending institutions serving consumers and small business owners in their region.

At this writing it’s an open question whether recent market trends will continue unabated over the next several years, or whether banks will review their opportunities and exit from unprofitable lines of business to concentrate on what they see as their core business activities.

Over the years the industry has swung between, on the one hand, pushing ahead into new markets to woo a larger slice of the customer’s wallet, and on the other, focusing efforts on so-called core services to build loyalty and brand recognition with specific customer groups. How this scenario plays out will have widespread impact on staffing needs across the board.

Commercial banking offers a wide variety of career opportunities, including positions in management, sales, customer service, and technical support. The size and scope of the industry is broad enough to offer career paths matching most areas of interest, education, and skills. A career in banking is flexible and not necessarily location-specific. Skills and knowledge acquired in many occupations are easily transferable to similar positions in the bank or in another bank located across the country. Banking offers advancement opportunities by moving into positions with greater responsibility or switching from banking into other industries where financial management skills are in demand.

Uppers
  • The work environment is stimulating. Every work day has a different set of challenges and opportunities. Bankers in highly compensated positions have a high degree of independence on the job.
  • There is plenty of personal interaction with customers, co-workers, and back office supporting staff.
  • The work can be rewarding financially for those who invest in their careers through further education and training to hone their on-the-job skills. Financial managers earned an average salary of $115,320 in May 2014, according to the U.S. Department of Labor, and financial analysts earned $78,620. These salaries are much higher than the national average ($47,230) for all careers.
  • Many potential career paths. There are many unique career paths in banking—including bank teller, financial analyst, risk manager, lawyer, accountant, loan officer, and bank manager.
  • Advancement opportunities are numerous, especially in firms affiliated with a commercial bank, investment bank, or insurance company. Investment profes work in private equity or venture capital.
  • Individuals with strong written or verbal communication skills, and who are team players, will thrive in this business. Banks want people who can write clearly, verbally express conceptual ideas to clients, and who are passionate about their work. Team players can do very well in this business.
  • Strong training programs. Most banks offer excellent on-the-job training and continuing education programs to help new hires and current employees hone their skills.
  • Geographic freedom. Opportunities are available in cities throughout the United States and the world, although you should expect a smaller variety of jobs at community and regional banks.  
Downers
  • Many people break into the career by working as tellers and in other customer-service positions. This entry point may not be appealing for those who are introverted.
  • The push to promote sales and increase revenues through cross-selling may be a turn-off to some individuals.
  • Change is the name of the game in the banking industry, whether it’s ever-evolving technology, mergers and acquisitions, or an emphasis on developing new customer markets. For some, constant change can be invigorating. For many others, it can be nerve-wracking and stressful.   
  • The work environment at banks is typically conservative. Expect a very structured work atmosphere, and be prepared to dress conservatively on the job.
  • The number of minorities (and to a lesser extent women) in high-level positions in the banking industry continues to fall short of these groups’ average in the overall U.S. population. Minorities should expect to be trailblazers at many companies.
  • While commercial banks offer good salaries, they can’t compete with the salaries offered by investment banks and hedge fund, private equity, venture capital firms.    
  • In order to stay competitive, you’ll need to pursue continuing education and certification credentials throughout your career. This can be time-consuming and expensive. 
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