Changing Direction

Commercial banks were accused of being too speculative in the pre-Depression era, not only because they were investing their assets but also because they were buying new issues for resale to the public. Thus, banks became greedy, taking on huge risks in the hope of even bigger rewards. Banking itself became sloppy and objectives became blurred. Unsound loans were issued to companies in which the bank had invested, and clients would be encouraged to invest in those same stocks.

But the Investment Banks have suffered more during recent economic trouble than their commercial counterparts. The risk exposure of the Investment Banks had been much larger than their Commercial Bank counterparts. The statistics shown in the above figure makes it very clear why they have been shifting focus from Investment Banking to Retail Banking after the onset of the turmoil.