Investment banking, also called an investment bank, deals more broadly with market activities. It is one of the specialized divisions of banking, like private banking and deposit banking. It is aimed in particular at large companies. What is investment banking, and what makes it so unique? Does it accept clients who aren't investors? And what kinds of services does it offer?

What is investment banking?

To understand what an "investment bank" is, you first need to know what it doesn't do. It doesn't take deposits from individuals. The bank has many clients, but they are mainly companies and investors who either seek financing or want to invest their money. Independent investment banks that don't take deposits from individuals request liquidity from other banks or the central bank, which partly explains why they are the first to be hit in a liquidity crisis.

The investment bank creates financing solutions and financial products tailored to its clients' needs. At the same time, the bank's clients have direct access to the trading floor through the "sales" desk for their daily investment or hedging transactions.

Clients served

An investment bank serves mature companies. It offers its services to large corporations to support them with their various financial transactions. This can be a bank specializing in investments or a specialized division within a traditional bank.

Investment banking



Investment banking generally differs from corporate banking in that it deals mainly with market activities, while corporate banking deals with finance. The difference is very slight, however, and banks tend to combine these two types of services.

It supports them in the following activities:

  • Corporate finance: corporate financing and advisory.
  • Global capital markets: operations on financial markets or brokerage.
  • Structured finance: corporate financing (IPO, mergers and acquisitions, etc.).

Three types of activities

The first is inherited from so-called merchant banks and consists of advisory work, particularly on mergers and acquisitions. The other activities relate to corporate financing. Investment banks organize capital increases, IPOs and bond issues. Finally, the third type of activity aims to find the most profitable financial investments or hedges. The bank acts as an intermediary for its clients on the financial and currency markets.

Does an investment fund strive for maximum profitability with strong leverage? The bank supports it with complex products, in particular derivatives, which are sometimes built into securitization vehicles.

These activities have been extremely profitable in recent years, which explains why even traditional retail banks in Germany have started to engage in them, sometimes through separate subsidiaries that are still tied to their parent company. Why such profitability? No doubt because everyone believed in it; trust is a key element in these matters. And certainly also because the activity was risky, and as is well known, return goes hand in hand with risk.