Private Banking – Definition

Cite this article as:"Private Banking – Definition," in The Business Professor, updated April 8, 2019, last accessed October 22, 2020,


Private Banking Definition

Private banks, or private banking, offer personalized financial, investment and banking services to its High Net Worth clients. The existing products and services available in the mass market of retail banking are customized for such affluent individuals to offer them a more efficient wealth management mechanism. Usually, dedicated advisers from the bank help these clients to access a larger variety of financing and investment options. The advisers assist these high net worth individual clients to choose the most suitable financing options for them.

Private Banking is not to be confused with a Private bank which is a banking institution that has not been incorporated.

A Little more on What is Private Banking

In private banking the client gets exclusive investment advice from the bank advisers to meet their entire financial management needs –  including asset management, tax filing, financial planning, passing assets to the future generation and retirement benefits planning.

Confidentiality is one of the main advantages of private banking. The customer dealings and services offered to these individuals are usually kept confidential. Under the private banking, the clients get customized solution to their financial management need, the banks do not disclose this information in public. This privacy is beneficial for both the bank and the clients. It restricts the other banks to offer a similar solution to the high net worth client and attract them into their services.

A bank adviser or relationship manager is assigned to each of these clients. Besides giving advice, these advisers also maintain a direct liaison between the individual client and the management of the Bank.

The amount of investable assets required for receiving private banking service varies from one bank to another. It may range from $50,000 to $500,000 worth of investable assets. Clients with such a large amount of wealth are able to invest in alternative options like real estate and hedge funds. It also helps is solving the liquidity issue of the banks.

The specific services offered in private banking depend on the individual bank and may vary from one bank to another. The followings are some of the services to be expected in private banking:

Deposit accounts (checking, savings, money market, CDs): Customers qualified for private banking may receive preferential pricing such as a higher rate of interest on their savings.

Investment planning services: Private Bankers offer custom made investment strategies to these clients. This helps them to protect and grow their asset.

Tax planning: The advisers help these customers to plan their tax most efficiently complying to the tax laws and regulation.

Cash flow management: The high net worth individuals may get support from the bank in managing their daily cash flow.

Mortgage loan and real estate investment: These high worth customers may obtain loans for their primary or secondary home. They may also get support for investment in real estate.

Lending: These clients may also receive specialized types of loans with a flexible line of credit secured by their account.

Risk Management: The advisers help their client in risk management. They guide the clients on how to protect their investment against interest rate fluctuation, foreign exchange risks, and liquidity risks.

Inheritance: Private banking helps customers plan for transferring wealth to the future generation.

Apart from getting personalized services and solutions the high net worth individual customers often get discounted services from the bank. The banks offer such discounts to incentivize wealthy customers to remain loyal to the bank. The Banks may also offer them the investment returns that outperform the market. Like these individuals may get access to an exclusive high performing hedge fund through the bank.

After the global economic crisis of 2008, the rules relating to private banking became more stringent. The new rules ensure more transparency and accountability on the part of the banks so that the customers are advised appropriately and truthfully.

Mostly the investment banks offer private banking services to its wealthy clients. Apart from that, some private banking firms offer the same services. According to the Euromoney’s annual private banking and wealth management ranking in 2018 UBS a Swiss multinational investment bank and financial services company top the list of “Best global private banking services overall 2018″.

The top 10 banks in this list are-

  1. UBS, a Swiss multinational investment bank and financial services company, headquartered in Zurich and Basel.
  2. JPMorgan, an American multinational investment bank and financial services company, headquartered in New York City.
  3. Credit Suisse, a Swiss multinational investment bank and financial services company, headquartered in Zurich.
  4. Julius Baer, a Swiss multinational private bank, headquartered in Zurich.
  5. Citi, an American multinational investment bank and financial services company, headquartered in New York City.
  6. Pictet, a Swiss multinational private bank, headquartered in Geneva.
  7. BNP Paribas, a French international banking group, headquartered in Paris.
  8. HSBC, a British multinational banking and financial services holding company, headquartered in London.
  9. Goldman Sachs, an American multinational investment bank and financial services company, headquartered in New York City.
  10. ABN Amro, a Dutch bank, headquartered in Amsterdam.

References for Private Banking

Academic Research on Private Banking

Service quality perspectives and satisfaction in private banking, Lassar, W. M., Manolis, C., & Winsor, R. D. (2000). Journal of services marketing, 14(3), 244-271. This paper investigates how service quality affects customer satisfaction. The study uses data of international private banking customers where the service quality is operationalized via SERVQUAL and Technical/Functional Quality. These two distinct service quality measures are compared as to their ability to predict customer satisfaction. These findings are then evaluated by introducing two moderators of the service-quality/customer satisfaction relationship. The research finally examines how to utilize the separate measures for customer satisfaction for improving the quality of the service delivery process, both from a technical and functional perspective.

Relationship marketing in private banking in South Africa, Abratt, R., & Russell, J. (1999).International Journal of Bank Marketing, 17(1), 5-19. The paper examines the success of relationship marketing in the private banking sector in South Africa. It provides a comprehensive literature review of relationship marketing. The paper aims to measure the success of relationship marketing by conducts a study among a sample of 118 high net worth individuals, among them 53 have a personal banker and 65 do not have one. The study finds that relationships are important in choosing private banks. It further analyzes the relationship between the bank and the client at various stages. The paper also discusses the implications of the private banking industry.

Corporate identity and private banking: a review and case study, Balmer, J. M., & Stotvig, S. (1997). International Journal of Bank Marketing, 15(5), 169-184. An introduction to corporate identity management is provided at the beginning of the paper. Then it briefly discusses the private banking sector both in the UK and abroad and provides a case study on the private bankers Adam and Co. The case study describes the elements that form the corporate identity of the bank. Including history, key incidents, and service quality. The analysis finds that service quality is the most important element contributing to the bank’s identity. The paper argues that in addition to the bank’s business and image, the managers should also be aware of the identity of the bank.

Individual differences in private banking: Empirical evidence from Finland, Karjaluoto, H., Koivumaki, T., & Salo, J. (2003, January). In System Sciences, 2003. Proceedings of the 36th Annual Hawaii International Conference on (pp. 9-pp). IEEE. The study conducted a survey among 1167 people in Finland during the summer of 2000 to find out the uptake of online banking. The study finds in the era of rapidly growing online banking, the management of digital customer relationships has become very important. The study compares different types of bank customers and their perceptions of technology and delivery channels and it concludes, the customers who do not use the online banking are more likely to be loyal to their bank whereas the users of online banking might want to change their banks.

Marketing private banking services to family businesses, Dreux IV, D. R., & Brown, B. M. (1994). International Journal of Bank Marketing, 12(3), 26-35. This paper discusses the changes to be expected in the family-owned businesses after the worldwide retirement of the Cold War Generation. The paper argues in this changing market, the traditional relationship management will not be enough, and the service providers will be required to reexamine their traditional product-driven sales tactics and reshape it to actual marketing strategies. These strategies are to be based on the needs, issues, and characteristics of the family system client.

Human resource management practices and employees’ satisfaction towards private banking sector in Bangladesh, Majumder, M., & Hossain, T. (2012).  The research was conducted among 100 bank employees working in the private banking sector in Bangladesh to assess the human resource management practices and its impact on the employee’s satisfaction. 88 persons among the responders answered properly to the nine questions that cover different dimensions of human resource management policy. Five-point Likert scale was used in developing the questionnaire and the result is analyzed by using Z-test and mean proportion analysis.  The study concludes the satisfaction level is not equal for all human resource management dimension. The compensation package in on the top of the list of dissatisfaction and that is followed by reward and motivation, career growth, training and development, management style, and job design and responsibilities. The study suggests the human resource management needs to be improved to achieve overall success.

An evaluation of alternative scoring models in private banking, Abdou, H. A. (2009). The Journal of Risk Finance, 10(1), 38-53. This paper examines the efficiency and effectiveness of alternative credit-scoring models for consumer loans in private banking. It specifically focuses on the financial risks associated with such models. It investigates these model’s efficiency in terms of correct classification rates and effectiveness in terms of misclassification costs.

The transformation of the Swiss private banking market, Geiger, H., & Hürzeler, H. (2003). Journal of Financial Transformation, 9, 93-103. This article analyses the changes that occurred in the Swiss private banking industry. It discusses the traditional strengths of this sector and describes the current and future challenges. It suggests some strategies to meet those challenges.

International post-merger integration: Lessons from an integration project in the private banking sector, Maire, S., & Collerette, P. (2011). International Journal of Project Management, 29(3), 279-294. This paper discusses an international post-merger integration project in the private banking sector and analyzes the challenges that were met. The methodology and tools that were used in the process are discussed in the paper along with the factors that led to success. It identifies three factors – capabilities in communication, organization and change management to be most important for such success. It also suggests that having an Integration Manager in charge of the process is important to achieve success in the integration process. It further states success in integration specifically depends on the pace of integration and it is the responsibility of Integration manager to set the pace by pressurizing to speed up the progress. The manager is also responsible for motivating people to work together towards success.

The influence of socio-demographic variables on customer satisfaction and loyalty in the private banking industry, Seiler, V., Rudolf, M., & Krume, T. (2013). International Journal of Bank Marketing, 31(4), 235-258. The paper analyzes the effect of socio-demographic variables of the customers on customer satisfaction, customer loyalty and service value in the private banking industry.

Work-life balance and burnout as predictors of job satisfaction in private banking sector, Devi, V. R., & Nagini, A. (2013). Skyline Business Journal, 9(1), 50-54. This paper analyzes the level of job satisfaction of the employees working in the private banking sector. It examines the work-life balance of the employees and their burn out experiences and determines the impact of demographic variables on these. It further attempts to determine the relationship between work-life balance, burnout and job satisfaction of the employees. The study was conducted among 103 employees working in 9 private sector banks. Regression analysis of the collected data shows the job satisfaction is positively related to the work-life balance and negatively related to burnout.

From private banking to central banking: ingredients of a welfare analysis, Wallace, N. (2005). International Economic Review, 46(2), 619-631. This article extends an earlier analysis of Cavalcanti and Wallace that shows the set of allocations achievable using outside (government) money is a subset of those achievable using inside (private) money. Here, the punishments for defection are weakened and the planner is allowed to make a transfer in the form of outside money. The results show that subset result from the previous study still holds but for a different reason.


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