An investment bank is a type of financial institution that is somewhat different to those found in the commercial banking sector. Investment banks provide services that assist governments, corporations and individuals in raising capital by acting as an underwriter or agent by issuing securities.
An investment bank may also provide equity to help companies with expansionary goals. The equity invested may be what the organization requires to make an initial public offering and thus gain access to capital markets. The investment bank would aid the newly floated company by issuing bonds to raise debt capital and then by finding buyers for those bonds. It would also take care of the bureaucratic side of the flotation and support the organization in an advisory capacity allowing the company to raise capital for expansion.
Mergers and acquisitions - or the facilitation of company mergers or buyouts - also falls under the remit of an investment bank and are often very lucrative deals.
In return for the services it provides, an investment bank takes a fee. The fee structures generally include success fees, breakup fees, minimum transaction fees and expense reimbursements. The fee system is an important source of income for investment banks.
Investment banks are heavily reliant on the success of their operations, which, in free market economics, is never guaranteed. In the wake of the 2008 financial crisis, tighter regulation of investment banking practices has, to some extent, reigned in the frivolous, high-risk investment culture that had become commonplace on Wall Street, earning the investment banking sector its alternative name ‘casino banking’. Despite this fact, the number of investment fund industry employees continues to steadily increase.
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