The concept of banking traces back thousands of years to Ancient Greece. Wealthy Greeks deposited their coins other trusted individuals (entrepreneurs) who took the money, made loans, exchanged different currencies and tested coins for proper weightings. Today’s banking system is a bit different with online banks, mobile payments, even digital currencies. There are hundreds of different services offered by banks as the financial needs of their clients grow more complex. But the basics are still the same. Borrowing money from depositors and lend out to others seeking capital.
What is a Banker?
A banker is an employee of a bank or financial institution who services the financial needs of clients. These clients can be individuals or institutions, both with different needs. A banker tries to maximize the profit of a bank while maintaining appropriate risk levels.
What does a Banker Do?
Essentially, bankers raise capital to make loans and investments. They charge interest and fees for the services and seek profit on the investments. Institutions include small businesses, large corporations and governments may seek regulatory advice, cash management solutions outside investments and of course, loans. Individuals need basic banking services such as a checking or savings accounts, and sometimes larger needs such as buying a home. Here is a simplistic example of how a bank handles that need.
John is looking to safeguard his money by depositing it at a bank. The bank agrees to pay John an interest rate of 1% for the use of John’s deposited money. Mary, who is looking to buy a house, comes to the bank looking to borrow money for the purchase of the house. Through an application process where the bank analyzes Mary’s income and credit score, the bank loans her the money (from John’s deposit as well as others) and charges Mary 6% interest for the life of the loan. The bank then takes the deposited capital and lends it out to Mary as a loan to buy a house (known as a mortgage).
The bank makes their money on the difference between what they pay depositors and what they lend to borrowers. Let’s say depositors get 1% from the bank for their assets and the bank loans out these deposits as mortgages at 6%. The different between these two rates, the net interest margin, is 5%. On a $300,000 loan, that equals $15,000 in interest per year. This is the profit on the loan for the bank per year, assuming the bank kept the loan on their books. Mortgage loans are typically 30 years in length so this is quite profitable for the bank.
What are the Different Types of Bankers?
Most bank branch offices have a ‘personal banker’ (or retail banker) inside that can handle the needs of individuals outside of basic teller, checking and savings needs. For example, if you have a large balance sitting in your checking or savings account, you may receive a call from someone from the bank who will try and offer different ways to handle that investment for you, maybe through purchase of certain bank products like CDs or to open an investment account for college savings or retirement.
Commercial bankers service institutional clients in the community with their financing needs. These are often small businesses, construction projects and real estate development. Services range from direct lending and receivables factoring to cash and Treasury services. Sometimes they are loan officers of the banks and tasked with analyzing the creditworthiness of the potential borrower.
Investment bankers are essentially capital raisers for companies. They offer expertise and advisory services, for fees. Many businesses, from tech startups to large publicly traded companies are often unsure of the best ways to do this. This can be deciding on the proper mix of debt and equity to use in a capital raise, compliance with government regulations and restructurings. In a way, investment bankers are middle-men since they don’t typically write the check themselves; they lean on their network of investors they’ve cultivated relationships with for funding.
Sometimes the bank itself will provide the capital a private company needs, but not as a loan. It may be as an investment by the bank in the company or project itself. This is the role of a merchant banker. Similar to private equity, many of the investments are in the private sector (not publicly traded) and are often real estate transactions. The merchant banking division of a firm means longer-term principal investing. In other words, the firm uses it’s own capital and (select accredited clients).
Merchant bankers also provide traditional advisory services and capital raising without an investment, often providing loans intermittently throughout the stages of company or projects life (known as mezzanine financing). For example, the bank might invest in a struggling company, turn it around and take the company public (listed on a stock exchange) through an IPO.
What are the Required Skills and Credentials of a Banker?
Networking skills are essential as bankers frequently tap into their network of contacts when sourcing new ideas or for referrals. There is also a significant sales component to banking and some bankers have rigid production quotas they must meet.
Bankers often become project managers. For individual clients, this can be overseeing the mortgage process from application to closing. For investment and merchant bankers, the client might be a startup company who’s been taken from concept to an IPO in a few years, requiring huge amounts of due diligence, strategizing and capital budgeting.
Be fluent in Microsoft office. Many bankers, especially investment bankers, need to be excellent with Microsoft Excel (doing financial modeling) and PowerPoint (presenting the conclusion from the analysis). Some investment bankers, especially lower level associates, put in notoriously grueling work hours putting these deals together. It’s not uncommon for entry-level analysts and associates to put in 80 hour work weeks for certain deals.
There are certain licenses that may need to be obtained. These include the Series 79 to perform some of the mergers and acquisitions (M&A) work required in investment and merchant banking and the Series 7, if offering financial advice and products to your customers. Some more aspiring personal bankers obtain more designations, such as the Certified Financial Planner (CFP) designation, to broaden the banks offerings to clients.
Academically, a bachelor’s degree is typically required and a Master’s degree in finance or accounting is highly preferred.
What is the compensation for bankers?
The median annual pay of a banker was $74,000 overall as of November, 2015, according to the job site Indeed.1 But this can vary widely depending on the type of banker you are.
Despite the prestigious title, the median pay for a ‘personal’ banker is just $35,613 per year, according to PayScale, although this can vary with experience and geographic location. Payscale goes on to note that many personal bankers go on to become branch managers at the bank, which increases their pay into the mid-$50,000 range.2
As bankers cater to more business banking, we see their compensation start to increase. Commercial banker’s compensation shows median compensation of roughly $90,000 according to PayScale.3 The average investment banker earns roughly $100,000.4 Similar to law firms, many investment banks get paid upfront by retainers.5 A merchant banker, essentially a private equity associate, earns about $105,000.6
How do I become a banker?
Let every one of your contacts know you’re interested in becoming a banker. Utilize professional social networks and make direct contact with someone in a position to hire you at a bank you’re interested in working for. This will show initiative since you are sourcing new opportunities for yourself, something bankers can relate to.
It is common to see ads for personal bankers on job sites like Indeed. When interested, many conduct an interview and require applicants to take an aptitude test. Assuming you have the right mix in terms of personality and competence, you may get hired and assigned to a branch office.
When pursuing the more competitive institutional banking positions, an MBA or Master’s degree in finance is typically necessary. Also, interning at a bank while in business school gives you a leg up on the competition (this will probably be the best networking you can do). The upper levels of banking can be very tough to break into so using a headhunter might be a good idea. They do more targeted networking for you.
Finally, when looking for a position in banking you should dress as professionally as possible. Work attire for bankers, not to mention culture, is some of the most conservative in finance. And don’t forget, despite the prestige and lucrative pay, bankers serve an important role for the community. Give back. Be seen at community meetings, church functions and at charity events. This will engender you to potential clients and bring in new business while helping others.