Investment Banking

Investment Banking. Principles of Investment Banking.

Investment Banking is an investment opportunity provided through investment banks. Investment banks are financial intermediaries who, much like commercial banks, have a principal purpose of bringing borrowers and lenders together. However, where commercial banks borrow money from individuals in the form of savings and checking deposits to lend to other individuals and businesses, investment banks help lenders invest directly in the business of the borrowers. Investment banks issue securities on behalf of companies and governments, trade securities in the primary and secondary markets on behalf of individual and institutional investors, manage portfolios for clients, and provide other financial advice and support services. Investment banks also engage in a lot of proprietary activities in the financial markets.

Investment banks can be classified mainly into three groupings: full-service, regional, and boutiques. Full-service investment banks are large institutions who provide a complete set of services to their clients with top expertise in most areas, and who operate on a global basis. Regional investment banks differ from full-service banks in exactly the manner in which their name implies, their operations are concentrated in a particular region. Boutiques are much smaller firms who specialize in a particular product or industry. Boutiques are often started by successful bankers who leave the larger firms with their extensive networks for the prestige and money associated with their own firm.

During most of the 1990s, the investment banking business has enjoyed tremendous prosperity, linked very closely to the longest bull market in history. As the stock prices have grown much faster and longer than ever, with financial news receiving increasing press coverage, the amount of activity in the financial services industry has grown as well. Financial innovations such as mutual funds have been very popular, leading to increased revenues for the brokerage arms of investment banks that execute the trades in the market.