Investment bank
Investment banks assist corporations in raising funds in the public markets (both equity and debt). They may also advise private individuals who have sufficient wealth (known as Private Equity or Private Banking).Investment banks will typically be concerned with several business units, including Corporate Finance (concerned with managing the finances of corporations, including mergers, acquisitions and disposals), Equities (concerned with research and valuation of company shares) and Trading (concerned with buying and selling shares both on behalf of the bank's clients and sometimes also for the bank itself). Venture capital for new or early stage ventures is also often a division of its own, although for long this was restricted in the US. Management of the banks own capital is often one of the biggest sources of profit; for example the banks may arbitrage in huge scale if they see a suitable opportunity and/or they may structure their books so that they profit from a fall of bond yields (a rise of bond prices).
Because potential conflicts of interest may arise between different parts of a bank, the authorities that regulate investment banking (the FSA in the United Kingdom and the SEC in the United States) require that banks impose a Chinese wall which prohibits communication between equities research and equities sales. The industry in the US has been heavily criticized, and often fined, for failing to actually restrict this communication, and for equity divisions pushing stocks which are known to be very poor investments, but which are partly owned by the bank.
In the United States, the Glass-Steagall Act prohibited banks from offering both commercial and investment services. The Glass-Steagall Act was repealed by the Gramm-Leach-Bliley Act in 1999. In part this was due to the tendency of the U.S. Congress to act itself as an investment bank: Lester Thurow claimed in the 1980s that it served exactly this function, advancing specific industrial policy and agricultural policy by direct grants or subsidies, loan guarantees, and exemption from regulations, taxes or other government-controlled expenses that would otherwise apply. This fusion of the banking and oversight role with fiscal policy was thought to be undesirably political, but inevitable if the US had no large investment banks.
The World Bank and many central banks are considered by most economists to be investment banks, as they can bolster or create currency for specific projects. Banking overlaps with monetary policy at this largest scale.
Some of the major global private investment banks include:
Public investment banking
Players
See also: Bank
