Behind every major corporate merger, behind every strategic acquisition, behind every large trade in securities, you will find an investment bank. These large financial institutions are in charge of raising significant amounts of capital for corporations and governments looking to take their business or economies to the next level. In 2005 (the last date for which accurate numbers are available), worldwide investment banking increased by 14 percent from the previous year, and it was the third consecutive year of growth.
The existence of investment banking stems from the passing of The Banking Act of 1933, which legislated a division between commercial banking services and banking services for corporate mergers and acquisitions. Over 70 years later, there are still conflicts of interest in these two realms, and the various regulatory bodies (the Securities Exchange Commission in the United States and the Financial Services Authority in Great Britain) require there to be a "Chinese wall" that restricts communication between investment banking and commercial banking / investment interests.
An investment bank must monitor closely its risk management when dealing with corporate clients, just as a commercial bank does with individuals. This involves studying markets closely, assessing the credit risks of individual companies and governments, and deciding what credit limits to set when raising capital. Once the process is set into motion, the front office of the investment bank prepares all necessary documentation for sales, trading, research and structuring.
Other areas where these banks operate include foreign exchange and commodities, mutual funds, pension funds and hedge funds.
Some of the leading investment banking institutions in the world include: