Investment Banking

Financial Dictionary -> Investing -> Investment Banking

Investment Banking can be described as the process of raising funds for businesses and companies by selling securities and through other methods and the advising of customers in regards to mergers, acquisitions, investing and other major business decisions.

Investment banks perform a number of services, including acting as a middle man between an issuer of a security and the investor (known as an intermediary), acting as an agent for large companies (representing them during transactions etc), taking part in various broker and dealer type operations, helping with stock, offering sound business advice to companies when it comes to things like mergers or acquisitions and they also help facilitate them by helping to raise money. They are the corporations' best friend.

In the United States to legally provide such major services an investment banker must be licensed as a broker/dealer and will need to be regulated by the SEC (FINRA).

Unlike regular financial institutions and financial advisers, they generally do not offer services to individuals on a personal level. For example you cannot go representing yourself and open an account with an investment bank; you need to be representing a large company or corporation. In this way you can think of investment banks as banks for businesses and commercial banks as banks for the general public. More recently the lines have been blurred as some institutions are taking on both routes.

Some of the more famous investment banks include the likes of Goldman Sachs and Morgan Stanley, although in 2008 both companies transitioned in to more regular banking activities.

Investment banking is a growing industry, posting 21% growth in 2007, with $84.3 billion. This was its fifth year of continual growth and revenue increases. A whopping 53% of all investment banking services take place within the United States.