This article will give an answer to questions like, what is Investment Banking and as well give insight into what investment bank is all about.
Any bank that assists individuals, corporations or any other legal institution to raise financial capital through underwriting or in some circumstances acting as the agent of such client when it comes to issuing of securities is called investment bank.
In some cases, investment financial banks play pivotal roles in the M&A (Merger and Acquisitions) process of most companies, providing them with ancillary. This ancillary includes FICC (Fixed income instruments currencies and commodities), Market making, equity Securities and mergers derivative.
The services of investment banks differ from that of commercial banks and retail banking or banks. One of the sharp dividing lines is that investment banking does not involve the collection of deposits from the client even though some recent banks combine both types of services.
The Glass-Steagall Act of 1933 created a strong marginal line between these types of banking until 1999 when the Gramm-Leach-Bliley Act suspended this division. Before the Gramm-Leach-Bliley, American banks could not gain some level of capacity in Capitalization and asset as most G7 nations operated these two types of banking as one. That is to say, a single bank could operate as a commercial, retail and investment bank.
This Gramm-Leach-Bliley Act implementation gave most US banks the opportunity to complete with their industrialized counterparts in rankings.
The Volcker Rule later gave in the year 2010 gave both types of banking some institutional level of separation.
Unlike commercial banking, the investment bank has two simple lines of Business which are sell-side and buy-side.
Sell-side in Investment Banking | Investment Banks Sell-side
This involves the sale of securities for cash as well as any other securities like the market-making, facilitating transactions as well as security promotion like underwriting, research and more.
The Buy Side of Investment Banking
In this type, the bank act as a financial advisor to individuals, governmental institutions and nations on what type of stock.