This lesson establishes the foundational structure of the investment banking industry, defining its core functions and the major players that operate within the global financial system.
1.1 Defining Investment Banking
Investment banking is a specialized segment of the financial services industry focused on the creation of capital for companies, governments, and other entities. Unlike commercial banking, which focuses on deposit-taking and lending, investment banking involves underwriting new debt and equity securities, providing advisory services for mergers and acquisitions (M&A), and facilitating trading and brokerage activities for institutional clients . The modern investment bank serves as an intermediary between issuers of securities and the investing public.
1.2 The Core Functions of Investment Banks
The activities of an investment bank can be grouped into several core functions, as detailed in the LUM University Corporate Advisory and Investment Banking course :
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Underwriting: The process of raising capital by purchasing securities from an issuer and reselling them to investors. This includes initial public offerings (IPOs) and follow-on offerings.
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Advisory Services: Providing strategic advice on mergers and acquisitions (M&A), corporate restructurings, and other complex financial transactions.
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Sales and Trading: Acting as intermediaries to facilitate the buying and selling of securities for institutional clients.
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Research: Providing analysis of companies, industries, and market trends to support investment decisions.
1.3 The Structure of the Industry
The investment banking industry includes a range of institutions, from large global “bulge bracket” banks (such as Goldman Sachs, JPMorgan Chase, and Morgan Stanley) to specialized boutique firms. The NYU Tandon course highlights that an understanding of “how products, once created, are distributed and sold” is essential . This includes an understanding of the interaction between primary and secondary markets .