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Finance

Finance

In 2017, Latin America will manage to grow again, at a rate of about 1.5%, after five years of economic slowdown, said this Thursday BBVA’s Executive Board Director speaking at the Latibex Forum. During his address in the opening day of the annual event, José Manuel González-Páramo noted that “Latin America is at a turning point”.

The fall of Lehman Brothers made it clear that the size of a bank can be important. Its collapse demonstrated the impact that an institution’s bankruptcy could have on the whole financial system and its repercussions for a country’s entire real economy. As a result, the G20 authorities sought to protect financial stability. Their first step was to identify other systemic banks.

Political events have been to the fore in 2016, and discussions at yesterday’s "Challenges for the Future of Banking"  (CFB) event, hosted by the IESE Navarra Business School in London*, reflected this. Commenting on the rumored bonfire of U.S. banking regulations by the incoming Trump administration, one speaker said: “I don’t want the Volcker Act (which prohibits American banks from trading on their own behalf) repealed - the re-organization would be too disruptive.”

According to Investorpedia, retail banks are banks devoted to provide services to particular savers and investors and small and medium sized enterprises. On the other hand, wholesale banks specialize in the provision of services in large operations, generally with large companies and organizations.

Although financial institutions today specialize in a certain type of activity, this has not always been the case. In fact, it was not until after the crash of 1929 that these two types of banking began to operate separately.

This took place in 1933 through the Glass-Steagal Law, which was promoted by Roosevelt as part of a package to stimulate the economy (The New Deal). This law was abolished by Bill Clinton in 1999, which allowed both models of banking to be housed under the same institution once again. However, after the financial crisis that devastated banks in 2008, these activities currently operate separately in most cases.

The main difference between both banking sectors is that they each specialize in different types of customers, but this is not the only difference, Let's take a look at other things that distinguish them.