The role of Revenue Recognition in Performance Reporting

Question: Critically evaluate following proposition: investment banking should be separated from commercial banking. Answer: Investment banking and commercial banking are the two vital part of the banking industry. However, there tends to be a difference between the two. The investment bank is mainly concerned with the buying and selling of investments on the contrary; commercial banks are present with the aim to manage deposit accounts (Volcker, 2011). The commercial banks are for the common masses and diverts fund from one segment to another while investment banking is not for a general purpose as it looks into activities that varies and is mostly into corporate activities like IPO, mergers and acquisitions, market evaluation, etc. The difference between the two is the major reason the investment banking should be kept separate from commercial banking. Investment banks can be termed as an institution that strives to serve the businesses. The main help is provided to the companies in the form of buying and selling of bonds, stocks, and other related investments. Moreover, it also helps the companies to initiate their IPO (Volcker, 2011). Hence, there is no normal functioning like accepting deposit or providing loans. These banks have high-risk tolerance regarding risk and are regulated by the Securities and Exchange Commission. Hence, there is no normal functioning like the normal banks. On the other hand, commercial banks have the main aim of managing deposits accounts like the savings account that pertains to businesses and individuals. In this scenario, there is a higher level of government intervention and this banking is more concerned with the retail sector and functions like IPO, stock buying, and selling is not done. Commercial banking has a vast difference as compared to investment banking because of the operations and the facilities (Wagenhofer, 2014). Investment banks perform various additional function that cannot be seen in the case of commercial banks. Investment banks help the buyer with the advice function on the valuation of the business, negotiation, transactions, and other procedures, etc. Trading of securities is effectively done by the investment banks. It is also involved in structuring the derivatives that is considered as an added advantage. Creation of such derivative products helps the parties in having greater returns. Therefore, it is not a simple task involved with accepting deposits and providing loans, but is concerned with the complex task of looking into various matters that is essential for the corporate activities. Further merchant banking that has attained a lot of popularity in the upcoming days are performed by the investment banks. It performs activity of the private equity of investment banks. Some apt examples of it are Goldman Sachs Capital Partners and JPMorgans One Equity Partner. Commercial banks do not have a high level of risk and acts in the best interest of the client. Risk tolerance is low because of the presence of government regulation. The regulations of government provides commercial banking the perfect back up while investment banking is regulated by SEBI. The commercial banks operates mainly with a view to channelize the funds from the housing to the corporate sector while investment banks acts as a middle men between the company that wants to issue new stocks and the public who wants to buy it. As there is a wide gap between the two, the two must be dealt in a different manner. The difference is seen in all aspect, and hence, investment banking should not be treated as commercial banking. Commercial banking operates under small arena while investment banking is huge, and covers a vast area. Therefore, investment banking is superior in nature and performs activities innumerable activities as compared to the commercial banks. References Volcker, P 2011, Financial Reform: Unfinished Business, New York Review of Books. Wagenhofer, A 2014, The role of revenue recognition in performance reporting, Oxford University Press