Investment banking, also known as an investment bank, deals more generally with market activities. It is one of the special types of bank organization, like the private bank and the deposit bank. It is aimed in particular at large companies. What is an investment bank, and what makes it so unique? Does it take non-investor clients? 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 accept 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, which don't receive deposits from individuals, request liquidity from other banks or the central bank, which partly explains why they are the first affected 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 in their various financial transactions. This can be a bank specialized in investments or a specialized department within a traditional bank.

Investment banking



Investment banking generally differs from investment banking in that it mainly deals with market activities, while investment banking deals with finance. The difference is very small, however, and banks tend to include both 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, merger and acquisition, etc.).

Three types of activities

The first is inherited from so-called commercial banks and consists of advisory work, especially on mergers and acquisitions. The other activities relate to corporate financing. Investment banks organize capital increases, IPOs and bond issuances. 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 foreign exchange markets.

Does an investment fund strive for maximum profitability with strong leverage? The bank supports it with complex products, especially 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 doing it, sometimes through separate subsidiaries that are nevertheless 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.