Newsbeat's guide to... retail and investment banking

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Page last updated at 11:40 GMT, Monday, 4 February 2013

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By Del Crookes
Newsbeat reporter City of London

A group which represents British banks, the BBA, says new laws aimed at protecting customers will make it harder for them to lend.

Chancellor George Osborne has warned banks that they face having their High Street business and investment arms broken up, if they don't keep ordinary people's savings away from high-stakes, so-called "casino-style" investments.

It's hoped that will prevent another economic crisis, where taxpayers had to bail out banks.

Retail banking

High Street banks fulfil day to day banking needs through current accounts, cash deposits and loans to private individuals and local businesses.

British banks with investment arms

Barclays
HSBC
Lloyds Banking Group
The Royal Bank of Scotland Group

There are now calls to split up everyday operations from investment banking after the global banking crisis.

The Independent Commission on Banking, set up by the government, also called for banks to have enough cash to survive if the rest of a company, such as their investment arm, started having financial problems.

That would help to keep branches open and cash machines operating.

The banking system was saved from collapse by billions of pounds of taxpayers' money in a 2007 government bailout.

The banks, however, argue that their investment arms should not be separated from their High Street operations.

They say it would make it more difficult for banks to raise money.

They claim that would have an impact on their ability to provide personal and business loans and damage the recovery of the UK economy.

Investment banks

Investment banks mainly do two things.

Firstly they work as traditional investment banks - offering financial advice to other firms who need to borrow money, float on the stock market or want to buy another company.

But they also act as traders, making money on the financial markets by buying and selling commodities and assets.

Many banks with a High Street presence now make most of their money in international finance deals rather than through retail banking.

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