What is Investment Banking?

A few days ago I ran across the best definition of investment banking that I have encountered to date.

When I was fresh in the industry it was somewhat of a clouded subject for me. People would talk about “investment banking,” but what, exactly, was that? I was working for a brokerage firm at the time. Was I in investment banking, I wondered? And if not, what did investment banks do that my firm didn’t do?

The term investment banking is thrown around a lot. In days past it was used with reverence. Now it is used more with disgust.

But what is it? It is a tough term to define because it encompasses a large number of business activities. Google it and you’ll find a number of definitions, all of which are dry and technical, and none of which actually capture the essence of what an investment bank really does.

Well, a few days ago while reading Young Money by Kevin Roose I came across his definition which is the best I have ever seen.

He writes:

“Investments banks, I learned, are vast collections of different money-related functions, all jammed somewhat haphazardly under one roof.”

It may seem a bit open-ended, but that is the beauty of it. Investment banking is not a clear cut-and-dry business activity.  The key word in the sentence is “haphazardly,” which in my experience is a MUST for an investment bank.

 

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