What is Investment Banking? Definition of Investment Banking, Investment Banking Meaning and Concept

Investment banking to that segment of the banking sector destined to obtain funds to carry out a medium and long-term investment as its main objective.

Traditionally it has been detached from traditional commercial banking, since they have different social objectives, while traditional commercial banking is focused on small savers and in need of financing, investment banking focuses on large companies.

Also called business banking, investment banking is the one whose main purpose is to negotiate with large companies and strategic sectors in search of profitability for their customers and shareholders.

Investment banking functions

In particular, its lines of action are:

  • It is in charge of the issuance and commercialization of securities.
  • Helps execute operations such as capital increases, loans, stocks and corporate debt.
  • Its main task is to advise and direct the process of distribution of the shares, these being the work you carry out for large companies.
  • Investment banks can also acquire shares or debt from companies that they consider attractive and strategic. Either for its current situation (profits or dividends) or for its future appreciation.
  • They create investment products.

In addition, investment banks have created their own investment products, placing these through the financial markets or directly traded through their own entities. One of the most recent and annexed extra services is the management of large assets, through companies, SICAV's, investment funds and the like.

Structure of an investment bank

To carry out their activity, investment banks have different departments:

  • Front office: Starting with the front office (the people with whom the client contacts directly, and they manage the pre-sale, sale and post-sale services). The front office in turn relies on the middle office.
  • Middle office: The middle office is the part in charge of evaluating the risk of the client and the environment, deciding on the possibilities of carrying out the operation and other matters of great importance.
  • Back office: Finally, there is also a back office to record operations and link with other areas of the bank.

Generally, North American investment banks, and to a lesser extent the British, have been par excellence the most recognized and expanded “Investments Banks”, which has caused them to be the main players in business banking throughout the world through the journey and prestige they have.

In this way, national investment banking has been relegated to the background in various countries, thus becoming a multinational, such as Merrill Lynch, Goldman Sachs, Morgan Stanley and the now defunct Lehman Brothers.