'Wholesale Banking' is explained in detail and with examples in the Corporate Finance edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
The concept of wholesale banking pertains to those banking services which are done between merchant banks or commercial banks and various other financial institutions. This form of banking services has to do with bigger bank clients like enormous corporations or other financial institutions. In contrast, retail banking concentrates on individual clients and small businesses. Such particular banking services cover financing of working capital needs, currency conversions, large trade transactions, and a range of alternative and specialized banking services.
There are so many different avenues which wholesale banking covers. This specialized department within the mega banks handles capital markets products, integrated credit, and a range of different advice and guiding for risk management, funding needs, and investment products and services for international and domestic major corporate clients. Such products and services run the gamut of structured transactions, specialized finance, credit structuring, loan syndications, project finance and securitization, merchant banking, wholesale equities, and public sector financing of infrastructure projects.
Among the many different types of wholesale banking clients are corporations which are medium sized to large, institutional investors and clients, pension funds, governmental departments and agencies, and other global banks and financial institutions both domestic and abroad. The services which they often need in day to day operations include equipment financing, cash flow management, large loans, trust services, and international merchant banking.
The concept also relates to lending and borrowing between larger institutional banks and other financial organizations. Such lending mostly goes on in the interbank market and revolves around huge sums of money in practice.
The majority of commercial banks function as such merchant bank operations, providing wholesale banking services besides the more usual retail customer banking services. It makes it more convenient for those customers who require wholesale banking services, as they will not be required to track down and go visit a specialized financial institution. Rather they are able to deal with the same bank which handles the customer’s individual retail banking needs.
The most understandable means of comprehending this wholesale banking phenomenon is to draw parallels with a discount superstore chain such as Sam’s Club or Costco. These outfits trade in such enormous quantities that they are able to feature special deals and lower fees per dollar of sales. For bigger institutions or organizations, this makes it advantageous for them who possess high dollars of assets and business banking transactions to participate in this banking wholesale instead of going the more traditional retail banking customer services route.
As an example, many businesses possess numerous locations throughout the country. They often times require a solution for their cash management, which wholesale banking can easily provide. Technology companies are an especially relevant business line for this type of banking. Perhaps an SaaS firm owns 10 sales offices throughout the U.S. It might be that every one of its 50 sales department members needs their own access to the company’s corporate credit card. The company owners also insist on every one of the regional sales operations maintaining at least $1 million in cash reserves on hand. This amounts to $10 million worth throughout the various offices combined. Companies with these type of needs will be too big for the traditional format of ordinary retail banking.
The owners of this company might instead contact a significant sized bank and ask for a corporate account which will handle each of the company’s financial accounts. These services function as a facility which will provide discounts to the company in exchange for meeting a minimum dollar level cash reserve requirements as well as a minimum level of monthly bank transaction requirements. It is in fact easy for the SaaS company to hit such targets each and every month. This is why the company will seek out such a corporate facility in order to properly consolidate together each of its financial bank accounts so that it may effectively reduce its total fees. This makes so much more sense for a larger company than instead having 10 different regional bank checking account and 50 separate retail bank corporate credit card accounts.