Study reveals banks’ efficacy

Investment banks have been less profitable, more volatile and had consistently higher costs than commercial banks, according to a study of business models of the past decade.

The Bank for International Settlements (BIS), a global forum for central banks, said yesterday that a study of 222 lenders showed big variances in profitability and efficiency across models, and investment banks had been less efficient and more unpredictable.

The study identified three types of business models: A retail-funded commercial bank, funded mainly by deposits; a wholesale market-funded commercial bank; and a capital markets-oriented bank, commonly known as an investment bank, heavily engaged in trading.