What is Investment Banking

Investment banking refers to investment banks, which are a kind of financial institutions mainly operating securities business. Investment banks are not strictly speaking in the category of banks, but professional securities institutions. The business of investment banks includes restructuring and mergers and acquisitions, corporate finance, securities issuance, underwriting, research, investment consulting, brokerage, asset management, wealth management and so on, and there are also investment banks that only focus on a single business.

Investment banks are relative to commercial banks, which operate profile financing business, earning profits through the interest difference between depositors' deposits and corporate loans. Investment banks operate direct financing business, neither accepting deposits nor granting loans, but providing enterprises with stock issuance, bond issuance, or restructuring, liquidation, etc., from which they draw commissions, and, of course, investment banks can also use their own funds and invest in the capital market.

The origin and development of investment banking:

After the 1929 U.S. stock market crash, the federal banner at the time that the investment bank's business risk is higher, so the commercial banks are prohibited from using depositors' funds to participate in the investment banking business, resulting in a large number of comprehensive banks were forced to split into commercial banks and investment banks. A typical example is the break-up of JPMorgan into Morgan Stanley (investment banking) and JPMorgan Chase (commercial banking).

In Europe, there is no such regulation, so the investment banking business in Europe is still hotly completed by commercial banks, forming the so-called ‘all-powerful bank’ or ‘merchant bank’, the typical example should be Deutsche Bank, which is the bank that is being devalued.

After 1990, the United States began a trend of mergers and acquisitions, the emergence of large financial groups such as Citigroup, JP Morgan, etc., which entered the field of investment banking and were also affirmed by the field of commercial banking.

Subprime crisis in 2008, the United States of America's independent investment banks or was acquired, or transformed into a financial holding company, both commercial users and investment bank attributes, to accept the supervision of the Federal Reserve. In other words, there is no longer a strictly independent large investment banks on Wall Street.

Comprehensively, it can be seen that there are two sources of investment banks: one is the decomposition of commercial banks, and the other is the development of securities brokers, such as Merrill Lynch.