Investment Bank
An investment bank is a financial institution that specializes in capital markets activities, advisory services, and securities underwriting.
Meaning in Practice
In practice, investment banks advise companies and governments on mergers, acquisitions, and restructurings. They underwrite and issue stocks and bonds, facilitate trading, and provide market-making services. Unlike commercial banks, they traditionally focus less on deposit-taking and retail lending.
Why It Matters
Investment banks play a critical role in capital formation and financial market efficiency. They connect issuers with investors and help allocate capital across the economy. Their advisory and underwriting functions support corporate growth and market liquidity.
Market Impact
Investment bank activity influences equity and bond issuance volumes, market liquidity, and valuation levels. Strong deal flow can signal economic expansion, while reduced activity may reflect tighter financial conditions. Their trading operations also affect market volatility and pricing dynamics.
Example
A corporation planning to go public hires an investment bank to structure and underwrite its initial public offering, market the shares to investors, and manage the listing process.