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Ask Matt: What Role Do Investment Banks Perform in Markets?

May 22, 2013

Ask Matt: What role do investment banks perform? A: Investment banks are the grease that keeps financial markets moving, often behind the scenes.

The term investment bank means different things to different people, but at its very core, the job of these institutions is to get money from people who have too much of it and are looking for a return to those that have ideas, but not enough cash. Investment banks shift cash from investors to entrepreneurs, typically by selling securities such as stock and bonds.

Investment banks sell, or underwrite, shares of new companies in the process of the initial public offering. They also handle the process of companies selling debt to investors. Investment banks also serve the role of selling these securities, by writing research on the prospects for stock and bonds. Meanwhile, investment bankers also operate trading desks. These parts of the business buy and sell securities using proprietary methods that attempt to find securities that are incorrectly priced, even for a nanosecond.

Given all the areas investment banks are involved in, there's a concern about conflicts of interest. Investment banks have been accused many times of not serving the interests of one client, to help another.

For more stories on investments and markets, please see HispanicBusiness' Finance Channel

Source: Copyright USA TODAY 2013

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