What is the purpose of investment banks? What does an investment bank do? This article examines what makes an investment bank different from a commercial bank. Find out the answers to these questions and more in this blog post!
What is the Investment Banking Industry?
The Investment Banking Industry is a global profession focused on providing financial services to companies and investors. The Bank acts as an intermediary between companies, investors and other market participants.
How do investment banks make profits?
First, many companies are set up to pay their company’s staff a certain percentage of their profits. In turn, when the company is making a profit of £1.2 billion, they give £120 million to these staff members on top of this profit. This is what drives the profitability of investment banks; unfortunately, some staff members at banks make a large sum from selling stocks to the public, which can be very dangerous for investors if the company goes bankrupt.
The Core Functions of Investment Banks
Investment banks are traditionally understood as financial intermediaries that take in capital from investors and then lend it out to companies, households, and governments. In modern times, this description has expanded to include not just the traditional functions of underwriting equity and debt securities but also research and trading operations.
Is there an opportunity for a new broker?
The financial services industry is growing at a rapid rate and it is difficult for people to keep up with changes. It is true that banks make money through money management, trading, and providing loans to businesses and individuals. However, they also take a hit in the form of transaction fees. There are many financial intermediaries who have entered the market in recent years to offer these services.
The purpose of banks is to offer loans and receive interest from the borrowers. They make money from the interest received not from their own capital. The purpose of banks is to make money and every activity that does not lead to making more money becomes a negative activity for them.