Investment Banking Is a Highly

Investment Banking is a highly specialized segment of the finance industry. Its basic function is to bring together, directly through the mechanism of financial markets, huge savers and savings-collection institutions with those wishing to increase additional funds for investment. Investment banks must be distinguished from ordinary banks and other savings collection and saving management institutions, that decide themselves on allocation of savings and that act as financial intermediaries. The use of financial markets is at the heart of investment banking.

There is an important distinction between investment banking activity and the institutions that perform it. Investment banking activity can be, and is, also undertaken by banks (who are financial intermediaries), provided the respective regulatory framework allows it and an individual bank wishes to engage in it.

Generally speaking, one can say that there are two types of regulatory framework. The first allows investment banking to be carried out by all types of commercial banks, resulting in the emergence of universal banks which, alongside deposit banking, engage in all or some types of investment banking. The second approach separates classic investment banking (ie, underwriting) from commercial banking and sometimes also from other types of investment banking activities.

Investment banks around the world have been suffering from a cycling downturn in underwriting and trading profits and from long-term structural adjustments that have made their business less attractive. In particular, investment banks have been very affected by worldwide decline in bond markets since the beginning of 1999 which has had a negative impact on their investment portfolios. During the 1980s investment firms amassed more capital and increasingly used greater leverage to fund their global expansion. When interest rates are falling, as they were throughout the 1980s and early 1990s, this generates substantial profits for the investment banking industry. In such a climate firms can often finance their trading positions at lower cost than the yield on bonds they are holding, and they can also earn substantial capital gains as the value of their bonds increases. When interest rates rise, as they are in the midst of doing now, the benefits of lower funding costs and price gains on bond portfolios disappear.

Only a handful of players are recognized as having the capital resources and risk management capabilities to provide a truly global market offering. The impact on investment banking market capitalization has been most marked for the 10 largest U.S. investment banks, otherwise known as the 'bulge-bracket' firms. European and Japanese investment banks tend to have less developed distribution channels and although some have invested significantly in developing international products, it is still argued that they do not have the expertise of the 'bulge-bracket' firms.

In the United States the development of investment banking has been significantly faster, more pervasive and widespread than in other major countries. This has been so because the rise in per-capita income and wealth in the United States has been more rapid, the advance in technology specific to investment banking and finance has been faster and regulatory framework has always had a marked anti-commercial-bank bias.

The demand for investment banking services relating to the restructuring of the U.S. economy in successive waves of mergers and acquisitions that began in the last two decades of the 19th century has reinforced the momentum behind the growth of investment banking. The U.S. Glass-Steagall Legislation and Great Depression, while reducing the demand for underwriting, added to the demand for restructuring. The post-World Ward II period was accompanied by emergence of institutional investment, especially by pension funds, in addition to the continued expansion of underwriting and corporate restructuring.

The investment banking sector could be evaluated using oligopoly theory. Basically of the seven companies in the sector, four are U.S.-based, two are Swiss and one is in Germany. The top three, in terms of sector share, are JP Morgan, Goldman and Morgan Stanley; collectively controlling over 24% of global sector. All are U.S.-based and each accounts for approximately 8% of the sector.

Knowledge is power in today's business world and where power goes, manipulation can't be far behind. Not a day goes by without talk of a new merger, acquisition or initial public offering (IPO) career in the securities industry can offer exciting work if you enjoy working in a competitive and demanding atmosphere. Investment bankers, stock brokers, and stock traders all make up the securities industry providing services to each other, as well as the general public. The primary differences between the three are the services they provide and who they provide these services to. Investment banking seems to be the most interesting of the three, as well as the most rewarding. This is due to the nature of the job an investment banker must perform. A career as an investment banker has its pros and cons just as any career does, but if you're looking for a high-demanding, high-risk career that at times is very rewarding financially, investment banking could be the career.

Investment banking has been around since stocks have been issued and bonds sold, but the field demands little, if any new jobs before the 1980's. This was due to the low complexity of the financial markets. Since then, investment banking jobs have been significantly growing due to the availability of complex securities and high-yield bonds, also known as junk bonds. Now that the financial market has become more complex, companies that didn't require investment bankers need their advice to effectively help their company sell stocks and bonds, and to make financial plans for the future.

To be considered for a job in the securities industry one must be content with living in or near a large city, and have at least a four-year degree in some type of business field, typically finance or accounting. The typical analyst works mainly on analytical work and also does a fair amount of writing. From here an analyst has the option to either go back to school and pursue an MBA, or try to advance to the position of a junior associate, which basically has the job of supervising the analytical work done by the analysts. Junior associates are basically trying to learn the business and acquire the skills they need to develop financial plans rather than to execute them. Their main responsibilities include running computer analyses, preparing the financial reports which accompany stock issues, and putting together the documents used by senior bankers to pitch ideas. Junior associates are primarily watched over by the senior associates.