What Is Investment banking & Why Investment Banking?

Investment banking is like the financial wizard behind the scenes. Imagine it as a helping hand for companies and governments to get the money they need to grow or do big things. Here's a breakdown in simple terms:

1. Money Creation Magic:- Investment banks take a risk by buying new stocks or bonds from a company. Then, they sell these to the public or other money-makers, helping companies raise the funds they need.

2. Matchmakers for Companies: Have you ever heard of companies merging or buying another? That's where investment banks step in, advising on how to make these big moves. They figure out the value of companies and help them make deals that work for everyone.

3. Money Advice Mentor:- Companies sometimes need advice on smart money moves. Investment banks are the experts offering guidance on how to organize finances or make changes that benefit the people who own a part of the company (shareholders).

4. Financial Middlemen:- Investment banks buy and sell financial stuff, like stocks and bonds. They're like the matchmakers for people wanting to buy or sell these money-related things.

5. Money Managers:- Some investment banks help manage and invest money for others. They might help with things like managing someone's financial portfolio or giving advice on where to put their money.

6. Money Investigators:- Investment banks have teams that study financial markets, industries, and companies. They share reports with investors and clients to help them make good decisions about money.

7. Risk Tamers:- Money comes with risks, like changes in the market or credit issues. Investment banks are like superheroes, working to reduce and handle these risks to keep everything running smoothly.

8. Financial Marketplace:- Investment banks help with the buying and selling of financial things in the big money market. Ever heard of IPOs? That's when a company first sells its stocks to the public, and investment banks make it happen.

So, investment banking is like the backstage crew making sure the financial show goes on. They connect the dots, make sure everyone's happy, and keep the money world spinning.

Numerous significant investment banking entities are associated with or operate as subsidiaries of major banking institutions, several of which have attained widespread recognition. The most prominent among them include Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America Merrill Lynch, and Deutsche Bank.

REGULATIONS FOR INVESTMENT BANKING

The Glass-Steagall Act passed in 1933 after the 1929 stock market crash, it was aimed to deal with the risks of combining commercial and investment banking. This mix was seen as risky and made the 1929 crash even worse. Whenever the market went down, investors took their money to withdraw from the banks, but some banks couldn't give it back because they had invested it in different stock markets.

Previously, banks used regular people's money to invest in risky investments such as stocks. Moreover, these investments made more money, so banks took bigger risks, putting people's savings at risk.

Even though The Glass-Steagall Act tried to protect these things, some in finance thought its rules, were strict in many manners. So, in 1999, Congress got rid of Glass-Steagall with the Gramm-Leach-Bliley Act. This change removed the separation between investment and commercial banks. Since then, big banks have gone back to doing both investment and commercial banking together.

WHAT INVESTMENT BANKING DO?

Investment banks play an important role in majorly handling large and complex financial transactions. Investment banking's main tasks are offering advice on a company's value and suggesting the best way to structure deals like acquisitions, mergers, or sales. They assist in underwriting new debt and equity securities for various corporations, help in selling securities, and facilitate processes like mergers, acquisitions, reorganizations, and trades for both institutions and private investors. Additionally, investment banks may issue securities to raise funds for client groups and prepare the necessary documentation for a company to go public, complying with the U.S. Securities and Exchange Commission (SEC) regulations.

Investment banking vs commercial banking