(FINANCE) a type of bank that raises
money for clients by issuing stock (see initial public offering and follow-on offering) or by issuing bonds.
Prior to the repeal (1999) of the Glass-Steagall
Act, commercial banks and investment banks were required to be separate entities. Subsequently, the law was changed so that a bank holding company could own a commercial bank and an investment bank.
Outside of the USA, commercial banks have
always been allowed to engage in underwriting securities.
Investment banks usually sell shares of stock on a major exchange, such as the NYSE or NASDAQ. They give a fixed amount of
money to the borrower, but also an agreed-upon number of shares, so if the shares soar in price after the public offering, then the investment bank makes an immense amount of
money.
Investment banks also underwrite other kinds of securities, such as bonds.
Goldman Sachs is the largest and most successful investment bank in the USA. Prior to
1999 it was a limited partnership; now it is a publicly
traded corporation and also a bank holding
company.
