What Is Investment Banking? (2024)

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Investment banking is the division of financial services that works to raise money for individual investors, large corporations, and governments. Investment banks provide underwriting services to help clients raise capital and complete mergers and acquisitions (M&As). Essentially, an investment bank is a middle-man for big, complex financial transactions, and investment banking facilitates these transactions.

What Investment Banks Do

Large investment banking companies, middle market, and boutique investment banks provide investment banking services, such as:

  • Assisting in between companies
  • Underwriting or raising money for their clients through the sale of debt or other tradable assets, like stocks or bonds
  • Providing investment management and advice to clients ranging from individuals to government institutions
  • Facilitating initial public offerings (IPOs), wherein a privately owned company wants to become publicly traded
  • Market research and analysis to inform investing decisions for the bank and its clients
  • Risk assessment and management to ensure the bank is making safe financial decisions and to help clients understand the risks they may face in certain economic decisions

Investment banks are typically split into two main functions: a buy side and a sell side. The buy side is mainly concerned with offering investment advice, like helping a company buy another company or helping an institution decide where and how to invest its funds. The sell side facilitates selling securities, or tradable assets, like stocks, bonds, and options.

What Is Investment Banking? (1)

Bank of America Investment Banking

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Avg. Time:5 hours

Skills you’ll build:SWOT analysis, financial analysis, M&A screening, debt capital markets, financial modeling, discounted cash flow analysis

Careers in Investment Banking

Investment bankers are the most well-known roles in investment banks, but many other careers exist in investment banking. These jobs help ensure the bank can accurately, safely, and efficiently raise capital for companies and governments. Some careers in investment banking are:

Investment bankers
Investment bankers raise capital and advise financial decisions — they work with clients to underwrite securities, source and organize M&As, and create financial models to inform their client’s decisions.

Brokers
Brokers act as intermediaries between buyers and sellers. For example, in investment banking, they aid in finding investors to buy securities.

Actuaries
Actuaries analyze the risk involved in financial decisions and make predictions about how various situations could affect a company’s finances.

Accountants
Accountants track and report a company’s financial performance and business transactions.

Investment managers
Investment managers advise clients on how to invest and manage their portfolios to maximize returns.

There are a variety of other career paths in investment banking that aren’t finance-specific, though. As with any large organization, investment banks need support staff like engineers and information technology specialists to keep things running smoothly. Investment banks also need office managers, secretaries, and assistants to facilitate office workflow.

>>MORE: Learn if a career in investment banking is right for you.

How to Get Into Investment Banking

Education and Certifications

Most careers in investment banking require at least a bachelor’s degree, and having a degree in finance can be beneficial — finance degrees can offer an excellent foundation for the economic concepts you’d be handling in an investment banking career. Investment bankers, in particular, may also need a Master’s of Business Administration (MBA) to rise up the ranks.

Beyond education, many investment banking careers require or benefit from having specific certifications. For example:

  • Accountants often need to pass a certified public accountant (CPA) certification exam.
  • Investment bankers usually need a chartered financial analyst (CFA) certification.
  • Risk assessment and management roles may require financial risk management (FRM) certifications.

Licensing

Licensing is also crucial in many finance careers because giving financial and market advice is a regulated profession. For those in investment banking, most of the licensing requirements are facilitated by the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC). These organizations provide exams and licensing in areas like:

  • Securities industry essentials (SIE Exam)
  • Investment company and variable contracts (Exam Series 6)
  • General securities sales (Exam Series 7)
  • Investment banking representative (Exam Series 79)
  • Compliance officers (Exam Series 23)

When working in an investment bank, you may be encouraged or required to take any number of FINRA exams to ensure you know your job’s rules and regulations.

What Is Investment Banking? (2)

JPMorgan Investment Banking

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Avg. Time:5 hours

Skills you’ll build:M&A screening, company analysis, DCF, financial analysis, financial modeling, communication, presentations

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Skills

A finance degree and certifications can be helpful, but they aren’t the end-all-be-all for working in investment banking. Much of the work investment banks do daily is based on hard skills and can be learned! Some of the most valuable investment banking skills include:

  • Financial modeling: Using Excel to create models of how a company’s finance would look after certain economic decisions, like if the company bought another company
  • Discounted cash flow (DCF) analysis: A method of evaluating the value of an investment based on potential future returns
  • Book-building: determining how much an initial public offering (IPO) can be priced based on bids from investors
  • Knowledge of different financial statements: Companies use several documents to show their finances, including income statements, balance sheets, and cash flow statements
  • Understanding debt capital markets: Involves understanding the types of debt, present and future value, project finance, and leveraged finance

>>MORE:Applying to investment banking roles? Download our free Superday guide below for exclusive insights on how to prepare for and ace these interviews.

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What Is Investment Banking? (3)

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McKayla Girardin is a NYC-based writer with Forage. She is experienced at transforming complex concepts into easily digestible articles to help anyone better understand the world we live in.

What Is Investment Banking? (2024)

FAQs

What is investment banking answer? ›

Investment banking is the business of raising capital for companies and providing advising services on financing and merger activities. Thus, for example, a company will approach an investment bank when it needs to raise capital or when it needs advice in negotiating and structuring an acquisition of another company.

What is investment banking in simple words? ›

Investment banking is the division of financial services that works to raise money for individual investors, large corporations, and governments. Investment banks provide underwriting services to help clients raise capital and complete mergers and acquisitions (M&As).

What is the best way to describe investment banking? ›

Investment banking deals primarily with raising money for companies, governments, and other entities. Investment banking activities include underwriting new debt and equity securities for all types of corporations.

How would you explain investment banking to someone? ›

Investment bankers are financial advisors who work with corporations, governments, and other large entities. They assist clients with raising capital, often through stock offerings or floating a bond issue. They can also assist with major financial transactions such as mergers, acquisitions, or the sale of a company.

How hard is investment banking? ›

Is it hard to become an investment banker? Becoming an investment banker requires several years of higher education in addition to licensure. It also requires strong mathematical and analytical capabilities, which may be challenging for some people.

What is the main purpose of an investment bank? ›

In essence, investment banks are a bridge between large enterprises and the investor. Their primary roles are to advise businesses and governments on how to meet their financial challenges and to help them procure financing, whether it be from stock offerings, bond issues, or derivative products.

What do investment bankers do for dummies? ›

They take in deposits from consumers and businesses, and then lend out the money to companies or consumers. But the duties of investment banks are quite different. Instead of taking deposits, investment banks sell securities.

What major is best for investment banking? ›

For those seeking a career in investment banking, a bachelor's degree in finance is a prerequisite. Other potential acceptable majors include bachelors in economics or bachelors in business supplemented with a minor in finance.

Why investment banking is worth it? ›

Investment bankers are typically the highest-paid workers in the finance industry—high salaries are most prevalent even among younger employees. The starting salary for the typical investment banker exceeds that of most other finance positions, but working in this field has its challenges.

What are the three main functions of an investment banker? ›

An investment banker performs three basic functions: underwriting, distributing, and advising.

Why are you interested in investment banking sample answers? ›

I'm excited to take my valuation and corporate finance learning to the next level by jumping into investment banking. I also think it'll be an excellent environment to learn because it's fast paced and analysts get a lot of responsibility from Day 1.

How do you answer why investment banking questions? ›

With The Big Picture Method, you answer the Why Investment Banking question by talking about how you started out on another path but shifted your interest to finance over time. This one works best if you're: A Career Changer (at any level). A Non-Finance/Accounting Major.

What is investment banking quizlet? ›

Investment banks match up buyers and sellers as well as buy and sell securities out of their own account to facilitate the trading of securities, thus making a market in the particular security which provides liquidity and prices for investors. In return for these services, investment banks charge commission fees.

What do investment banks do for dummies? ›

They take in deposits from consumers and businesses, and then lend out the money to companies or consumers. But the duties of investment banks are quite different. Instead of taking deposits, investment banks sell securities.

What should I say in an investment banking interview? ›

ANSWER: Start by stating, briefly, the skills that are required for investment banking (see the article on investment banking analyst roles), and then explain how your previous work experience has given you similar skills.

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