Quite often today you can find such a thing as "investment banks." What is it? What is their purpose and purpose? What are they created for? What rules are followed? These, as well as a number of other questions, will be answered in the framework of the article.
general information
So, let's first find out what investment banks are. These are special financial institutions that help raise capital for governments and large companies in global markets. They also provide consulting services during the sale and purchase of a business. An investment commercial bank can also help in trading bonds and stocks by introducing brokerage services. And finally - he helps to cope with financial instruments, commodities, currencies and prepares analytical reports on the markets where he operates.
If we talk about specific definitions, then there is no consensus, and many countries give their interpretation of the meaning. We will take the following as a reference point: investment banks are enterprises that are engaged in the trading of corporate and government securities, first of all, through operations with large packages; they also engage in corporate financing in the form of raising capital for issued shares and bonds, or through the issuance of a long-term investment loan.
Main characteristics
Commercial investment banks have their own unique features. But we can distinguish their main characteristics:
- So, an investment bank is a universal large commercial organization that combines and provides a large number of permitted activities in the securities markets and some other financial platforms.
- The main thing is the implementation of activities to raise funds using securities.
- As a large organization, an investment bank works almost always on wholesale principles.
- Priority is given to medium and long-term investments.
- The basis for the asset portfolio are securities, with the non-profit part of the market being of the greatest interest.
Activity Example
Let's take BCS as the subject in question. The investment bank is involved in attracting financing. But investing in something is not his only activity. It is a fairly universal institution, in which other types of activities are developed, which are involved in credit institutions. What does BCS have for this? The investment bank, in the first place, is characterized by well-developed and organized work in various directions. This creates the basis for investing. Investments are both the most prestigious and the most profitable work tools. Therefore, as a rule, more or less large companies work with them.
Functions
So, we know that investment banks in Russia, as well as other countries, are special credit institutions that specialize in investments in various companies and enterprises. And they have the following functions:
- Engaged in the implementation of passive operations. These include those that help in the formation of the bank’s own resources.
- Engaged in the implementation of active operations. By this we mean certain actions by which credit institutions allocate resources. These include bank investments, loans for securities and more. All these operations are called stock.
Investment banks form resources through their own and borrowed funds. Most attention is paid to the issue and placement of securities.
What is abroad?
In many countries, investment banks / funds have long existed, so you can turn to them in order to better study the features of existing mechanisms. So, in developed capitalist countries , it is popular to provide direct long-term industrial credit to large enterprises on the security of their plants, factories and equipment. This approach is often accompanied by the fact that banks become participants in the subject of economic activity. In other words, there is a process of merging industrial and banking capital. How can this happen? One option is bank investment. In such cases, buy securities. Then they become the property of the bank itself.
In general, there are a lot of interaction options. But the direct participation of the credit organization in different countries may have its own specifics. When some international investment bank stops placing securities, then it begins to form subsequently for them the secondary market. To do this, he acts as a dealer and broker. In addition, there are frequent cases when a credit institution acts as guarantors or founders of new organizations that conduct an initial public offering. They can also create consortia, which will include investment and commercial banks, as well as dealerships for greater efficiency.
And what about the Russian Federation?
We pretty well examined how a foreign international investment bank works. Now let's pay attention to the situation in the Russian Federation. So, in the country they are doing the following:
- Act as dealers, brokers and depositories.
- Forming issue portfolios, as well as individual sets of securities for specific investors.
- Settle settlements according to transactions with securities.
- Provide investment advisory services.
- They are engaged in the search for people who are ready to invest their money in various entities, as well as places where you can get the highest profit.
As an example, let's consider the First Investment Bank. This is a fairly powerful financial institution that specializes in a wide range of investments. So, in addition to ordinary investments in securities, it also provides the opportunity to purchase collection coins, precious metals, operate with assets remotely through a secure cryptosystem and an electronic digital signature. But the First Investment Bank is focused primarily on legal entities. And to use the services of such institutions can be quite problematic in practice for ordinary citizens.
Is everything so bad?
Not at all. Many lending institutions are universal. As an example, consider “Investment Trade Bank”, also known as “Investtorgbank”. This lending institution is engaged in the mobilization of long-term loan capital and its provision to borrowers through the issuance and placement of loan obligations. “Investment Trade Bank” is a structure that is primarily aimed at enterprises and organizations of various forms. But besides this, there are a number of services for the average layman. True, you can quickly get unless something is a standard set of services like loans and deposits. Investments, although affordable, still require the signing of a certain amount of additional pieces of paper. Therefore, when going to such institutions, you need to tune in, that you have to get acquainted with the content of a fairly large number of documents.
In general, investment banks are structures that can be attributed to one of two types:
- They operate in the field of placement and trading in securities.
- Carry out long-term lending.
First type investment banks
The first such institutions were formed as limited liability partnerships in the first quarter of the nineteenth century. In the twentieth century, there has been a tendency to move away from the affairs of private bankers, small and medium-sized organizations in favor of large groups. Legislatively divided into investment and commercial was first conducted in the United States in 1933 by the Glass-Steagall Act. The subjects of economic activity that interest us have concentrated on raising funds for large companies and enterprises. Over time, they began to actively participate in the creation of new subjects of economic activity, as well as their reorganizations, mergers and other changes in the organizational structure.
What else are they doing?
Initially, it should be noted that such institutions do not accept deposits. They concentrated on the issue of securities and guarantors. Their income is formed at the expense of commissions or payments of predetermined amounts that do not depend on performance. Banks also work as agents who acquire part of the securities in cases where they believe that the company will act successfully and they can make money on it. When the placement takes place, conditions, terms, size and responsibilities are negotiated. For more efficient activities, they are organized in banking syndicates.
Nowadays, such a state of affairs often develops that without action in this way companies are developing relatively slowly, so investment financial institutions are not sitting idle. Such a combination is also widespread when bank managers are simultaneously members of the board of directors of enterprises and corporate structures for which they issue shares. It should be noted that in the field of investment banking, it is believed that the main influence here belongs to half a dozen structures, and all the rest are just intermediary organizations. That’s probably all.
Type 2 investment banks
They are usually created on a joint stock basis. It often happens that they are organized together with the state. Their main goal is to provide medium- and long-term lending for certain sectors of the economy or special target programs. In addition, they can operate in the markets of loan capital, mobilizing the funds of the population and small enterprises. They also carry out lending activities and investments in state and local securities. One cannot but evaluate their contribution to the development of various financial services. Such banking houses arose during the transition to capitalism and were originally formed from moneylenders, which were united in partnership. Initially, they took upon themselves the fulfillment of trading, settlement, acceptance and issuing functions. They worked with securities, but, as a rule, government securities. As of the twenty-first century, about fifty powerful banking houses have been formed. Their peculiarity is that they, as a rule, were formed from family enterprises and only with time were transformed into joint-stock organizations. But to this day there is a priority of representatives of a particular genus.
What are they doing?
If we talk about passive operations, then this is their own capital, which was formed from family shares, share and reserve capital, retained earnings, borrowed funds and other things. This is a private resource of credit organizations.
But the greatest interest in the study are active operations. Investment banks built their true power on them. The activity in this case involves working with cash on hand. Private and government securities, real estate and financial instruments.
Features
It should be noted that investment banks are, as a rule, the prerogative of developed countries. Only a relatively small group of developing countries can boast of their availability. After all, they are engaged in real investments, that is, investments in fixed assets, which contributes to the growth of inventories. And for greater efficiency, technological development is required in the form of the result of a scientific and technological revolution and skilled labor.
Conclusion
For investment banks, when they decide on the issue of investments, the important ones are:
- Intellectual potential of production.
- Qualification.
- Experience and knowledge of workers.
- Training costs.
- Anything else that will allow using the acquired capital as efficiently as possible.