(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.
