One of my friend recently asked the basic difference between Investment banking and traditional banking....



Traditional banking is the normal bank accounts we have. Like, put your money in the bank and they act as a security and you will get only the normal interests (decided by RBI in our case, FED bank in US).

Investment banking is entirely different. Here, people who are having so much money (money in excess which will yield only less interest if in Banks) will invest their money and get higher returns. For example, If i have more money instead of taking the pain of investing in share market, buying properties etc. I will give to investment banks and they will do the money management and give me higher returns when compared to traditional banks.

And FYI... GS and JP Morgan are not becoming Traditional banks, but Bank holding companies which is a little different -- http://en.wikipedia.org/wiki/Bank_holding_company. Thats because, these companies have made little profit, but meager chance to come out of this crisis and in need of so much liquid cash, which obviously FED will have or other traditional banks will have... (that's y Ameri. Bank gave a hand to Merill Lynch). Why? - Traditional Banks will always have Liquid cash.

Check out the the 2 links in this post 2 understand y exactly this financial crisis and what is sub prime lending -- http://varalu.blogspot.com/2008/09/us-economy.html

I am sure... I have not explained everything in full. Someone can elaborate on this more.

This is actually quite interesting to me.

I do have a question though. When you talk about investment companies, where others invest your money for you. Is the money backed up by the FDIC or can you lose it?

I just, at least right now, find that it is better to put it in lower interest with no risk than to go with higher interest and risk losing everything.

I have done a little research on different things but never really found valuable information. Everyone always just says "invest it!"...

I have a Bank of America checking account, which is FDIC backed, which means all my money there is safe even BOA going under, FDIC will pay me back.
I also have a BOA investment account, it is not backed by FDIC, but backed by SPIC. For example, I have 100 share of IBM in my investment account bought at $100. Suppose BOA going under and IBM is 50 a share, then SPIC make sure I still own 100 shares of IBM, EVEN I lost half of values, SPIC doesn't care. SPIC will destinate another party to take BOA over when BOA going under, I can get 100 shares of IBM from that party.
So in short, your money in one back can be backed by FDIC or SPIC, and they are quite different.

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