Corporate banking is a term for a group of services that banks provide to companies that open accounts with them. There are a variety of services that comprise this type of banking, including loan, advising and securitization services. Much of corporate banking resembles individual banking, but there are also aspects that are specific to the needs of corporate customers. The practices of corporate bankers have evolved in response to the relaxation of regulations in the United States on the investment activities of banks, so they can provide a wider range of options to their corporate clients.
Some functions of corporate banking are similar to the banking services available to individual customers. For example, corporate banks give loans to companies. As with individual loans, the banker’s decision about whether or not to grant the loan is based on the perceived credibility of the applicant. Various rating agencies, such as Moody’s and Standard & Poor's, publish assessments of companies’ credibility; these are often structured as bond ratings, which indicate the likelihood that a company will be unable to pay the obligations set forth in its bond contracts. The decision of the banker is similar to that of the bond investor because, if the company defaults, neither is repaid.
There are other services that corporate banking offers that are specific to corporate clients. Corporate bankers help their clients conform to regulations while preserving as much profit as possible. For example, they may provide tax advice to their clients. They also advise clients on practices such as transfer pricing, which is the process of setting the prices that one part of the company charges another part for goods and services. Optimizing processes like this one is important to the company, but often corporations must pay attention to laws governing their boundaries — corporate bankers ensure that the requirements are met.
Another function that some corporate bankers choose to take on is the process of securitization. This means that they help their clients create investment products for the purpose of raising money. For example, a bank might agree to underwrite a client’s initial public offering of stock.
Securitization services in the United States arose after the passing of the Gramm-Leach-Bliley Act in 1999, which repealed part of the Glass-Steagall Act of 1933. Glass-Steagall limited how much banks could become involved in investment activities. The goal was to separate banking, which involves purchasing investment products, from services like securitization, which produce those products. The repealing of the act blurred the line between investment firms and corporate banks.