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Investment Banking
Definition
In the United States, this activity occurs primarily around Wall Street -- however, the function of investment banking such as conducting initial public offerings (IPOs), arranging financing for companies and creating new securities happens all over the world today.
Using the term Investment Banking :
Investment banking is traditionally more of a transactions based industry where fees and commissions are earned through work done. However, as commissions have dwindled due to decimalization (from fractions) and the use of technology, investment banks now trade their own money in proprietary accounts to make profits. This inherently increased their business risk, but they have specialized knowledge that allows them to try to reduce this risk. It is still a riskier business model than pursued before the early 2000's.
Pay Special Attention To :
Recently, in 2007-2008, investment banks used too much leverage and helped cause a large scale financial problem. The global governments stepped in to help stabilize the system, but many of the structural issues still remain and regulation is still fairly loose. We may have a more volatile market in the future.
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Related terms
Dawn Raid , Wall Street , Futures , Forwards
