We can all agree that the invention of the modern banking system has been a major contributor to the progressive development of national economies, but we can’t quite reach a consensus on what constitutes the earliest example of a modern bank. Some historians believe that commercial entities dedicated to grain banking in ancient Egypt should be considered the earliest example of modern banking, but many others argue that the Italian banks of the Renaissance, which explicitly managed fiat currency, are the true predecessors of the banking system we use these days.
Something that historians can certainly agree on is that the earliest banks we know about operated in a fashion similar to modern institutional or corporate banks. Banks from the pharaonic period focused on the expansion of central grain reserves, and they provided loans and other services to merchants not only in Egypt but also across the Mediterranean in Greece. In the Veneto region during the Renaissance, merchants banks dealt mostly with traders, mariners, the Roman Catholic Church, farmers, investors, and the military. Mercantile and commercial banking were established many centuries before the advent of consumer banking.
The First Bank of the United States, which was chartered in 1791, can also be described as having been an institution dedicated to wholesale and corporate matters. Under the political leadership of President George Washington and Treasury Secretary Alexander Hamilton, the First Bank was in charge of making money for the government and managing the considerable debt carried as a result of the Revolutionary War.
History tells us that the business of both institutional and corporate banking is very traditional. The business goals that these financial entities pursue today are pretty similar to those of the grain banks of Egypt and merchant banks of the Roman Empire. The terms we use to describe banking systems have changed as well; this allows us to place corporate and institutional banking under the umbrella of wholesale banking, and we can also include investment banking in some cases. The banks where most American workers deposit their paychecks in belong to the retail banking sector. This is the first similarity between institutional and corporate banks: They are both chartered as wholesale institutions.
A wholesale bank can operate on an institutional or corporate capacity according to its business model and applicable regulatory compliance, but it cannot cater to consumers because that would require a retail banking charter. In the United States, you can have a holding company that applies the same branding to its wholesale and retail banking operations, but the banks must operate under separate charters issued by state financial operators.
Interbanking operations are an important aspect of institutional banking; they provide liquidity to global financial markets, and they also play a major role in terms of foreign currency exchange. Pension funds, boutique investment banking firms, and mortgage companies are typical clients of institutional banks.
Corporate banking is also referred to as commercial banking, and it is dedicated to serving the financial needs of business entities. Some retail banks and credit unions can handle the financial affairs of small businesses such as sole proprietorship operations and micro-companies, but mid-size enterprises have to engage the services of corporate banks. Some banks are organized in ways that allow them to provide both institutional and corporate banking services at once.