Is It Necessary to Combine Investment Banking and Commercial Banking?

In: Business and Management

Submitted By dhilsh
Words 673
Pages 3
Is it necessary to combine Investment Banking and Commercial Banking?

Separation of Retail Banking and Investment Banking was a hot topic with President Obama’s proposal in January 2010 regarding a ban on US Banks on retail banks from using their own funds in investments and limiting to invest their customer’s funds. This news made many to wonder whether the world is going back to replace Glass Steagall Act which was abolished in 1999.(BBC,21January2010)

Glass-Steagall Act(GSA)commonly known as Banking Act 1933 made the investment banks and Commercial Banks to function separately in order to refrain Commercial Banks from greater in securities business activities. This Act prohibited Commercial Banks to underwrite securities to public while it prohibited Investment Banks to accept deposits from customers.

Many argue that commercial banks should not involve in securities(stock/bond)market investments as commercial banks divert funds in investment banking. In other words internal transparency of movements of funds not very clear when operating as a ‘Universal Bank’. Prior to 2007-2009 financial crisis Commercial Banks were greedily involved merely because of profits in securitization business where subprime mortgages were involved. During the rise in property market in 2006,banks created and traded in securitized assets, backed by subprime mortgages. Banks became greedy of making more money through SPV(Special Purpose Vehicle)taking high risks. When borrowers start defaulting loans property price fell down resulting banks holding worthless properties. The main cause was these securitized assets were recorded as off-balance-sheet transactions..( Apostolik, R.,,2008).

Banks misusing securitization was one reason why regulators require commercial banks and investment banks to function as two different units.

GSA was targeting to…...

Similar Documents

Investment Banking

...The UNOFFICIAL GUIDE to INVESTMENT BANKING Issued by CONTENTS MYTHS AND REALIT IES 6 OVERV IEW OF INVE STMEN T BANK ING INTRODUCTION 4 WHY AN UNOFFICIAL GUIDE TO INVESTMENT BANKING? 3 ASSET 8 MANAGEM ENT 12 GLOBAL BANKING FINANCE 10 GLOBAL MARKETS 16 HUMAN ES RESOURC 20 22 GROUP TECHNOL OG & OPERA Y TIONS LEGAL, RISK & CAPITAL 24 WORKING THE PROCESS TOP TIPS 28 30 GLOSSARY Why an “Unofficial Guide to Investment Banking?” The aim of this guide is to give you a fresh view of investment banking. A brochure is helpful, but can read a little like a catalog. We think you need to know what your life would really be like, challenging out-of-date myths and stereotypes, so you are able to make the most informed decision possible. This is an honest look at investment banking and is based on the experiences of people just like you, who have now gone through the graduate program and come out the other side with blossoming careers. It is the inside story of investment banking written by analysts for graduates, and you won’t hear this tale anywhere else. We’re going to tell you about all the divisions you could work for, what life’s really like for analysts and show you that there’s more to banking than pitch books, power lunches and pinstriped suits. And if you still want to go into banking once you’ve heard the inside scoop, we’ll tell you about how to get there......

Words: 13591 - Pages: 55

Investment Banking

...Difference Between Investment Banking and Merchant Banking Investment vs. Merchant Banking Bank is an organization that provides a range of financial and some non financial services to its customers. The main source of income, that makes the bank survive is the interest charged from those to whom the bank has given loan. A bank accepts deposits from its customers and pay interest to that deposited money, while it lends money to those who need finance and charge interest from them. The interest rate chargeable from the borrowers is higher than the interest rate payable to depositors. This is how a bank, which is traditionally known to normal people, earns revenue. Banks can be broadly categorized as retail banks and investment banks. The above mentioned revenue generating procedure is more applicable to a retail bank. The revenue models of investment and merchant banks are different, which we will discuss in this article. Investment Banking An investment bank is a financial institution that engages in the issuance of securities on behalf of its client. Investment banks are the banks, which facilitate both the investor, who is in search for good investment opportunity and the investee, who is searching for capital to invest in viable projects. Unlike other types of banks, investment banks are not accepting deposits from customers; that is, investment banks do not provide regular banking services to the general public. The main Investment banking activities are......

Words: 1541 - Pages: 7

Investment Banking &

...[pic] Master in Business Administration COURSE SYLLABUS Investment Banking And Structured Finance Analytics Course Code: IBSFA Faculty: Prof. E. B. Perez Course Description This is an advanced finance course suited for finance majors. However, the focus is on the practice and business of investment banking. Corporate finance skills are assumed, as well as concepts regarding structured finance. Grading Class Participation 50% Class Presentation 50% Course Outline |Session |Cases, Readings and Exercises | | | | |1 |Case: CML Group, Inc. (A) and (B) | | | | | |Session 1 CML Group, Inc. (A) and (B); the (C) for class distribution. | | |2 Hutchison-Whampoa LTD - Yankee Bond Offering | | |3 Chase's Strategy for Syndicating the Hong Kong Disneyland Loan (A) ...

Words: 2616 - Pages: 11

Investment Banking

...Investment Banking Valuation, Leveraged Buyouts, and Mergers & Acquisitions JOSHUA ROSENBAUM JOSHUA PEARL FOREWORD BY JOSEPH R. PERELLA Investment Banking Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia, and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers’ professional and personal knowledge and understanding. The Wiley Finance series contains books written specifically for finance and investment professionals as well as sophisticated individual investors and their financial advisors. Book topics range from portfolio management to e-commerce, risk management, financial engineering, valuation, and financial instrument analysis, as well as much more. For a list of available titles, please visit our Web site at Investment Banking Valuation, Leveraged Buyouts, and Mergers & Acquisitions JOSHUA ROSENBAUM JOSHUA PEARL John Wiley & Sons, Inc. Copyright C 2009 by Joshua Rosenbaum and Joshua Pearl. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey. Published simultaneously in Canada. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the......

Words: 138300 - Pages: 554

Investment Banking

...Investment Banking: Past, Present, and Future by Alan D. Morrison, Saïd Business School, University of Oxford and William J. Wilhelm, Jr., McIntire School of Commerce, University of Virginia investment banks are changing fast. Forty years ago the industry was dominated by a few small partnerships that made the bulk of their income from the commissions they earned floating securities on behalf of their clients. Today’s investment banks are huge full-service firms that make a substantial proportion of their revenues in technical trading businesses that started to attain their current prominence only in the 1980s. The CPI-adjusted capitalization of the top ten investment banks soared from $1 billion in 1960 to $194 billion in 2000. Between 1979 and 2000, the number of professionals1 employed by the top five investment banks (ranked by capitalization) rose from 56,000 to 205,000.2 The enormous upheavals documented in the previous paragraph raise a number of difficult questions. What have the investment banks of today got in common with their predecessors? Is it possible to draw any meaningful parallels between businesses that today call themselves investment banks and the investment banks of 20, 40, or even 100 years ago? What is the source of the recent changes to the investment banking landscape, and can we say anything about the likely future direction of the industry? These questions point to a more fundamental one: namely, if investment banks did not exist, would we need to......

Words: 11416 - Pages: 46

Middle Market Investment Banking

...One of Forbes’ 33 “Favorite Sites.” – Forbes “To get the unvarnished scoop, check out Vault.” – SmartMoney Magazine “Vault has a wealth of information about major employers and job searching strategies as well as comments from workers about their experiences at specific companies.” – The Washington Post “A key reference for those who want to know what it takes to get hired by a law firm and what to expect once they get there.” – New York Law Journal “Vault [provides] the skinny on working conditions at all kinds of companies from current and former employees.” – USA Today Customized for: Mian Badr ( Customized for: Mian Badr ( VAULT CAREER GUIDE TO MIDDLE MARKET INVESTMENT BANKING JOE BEL BRUNO AND THE STAFF OF VAULT Customized for: Mian Badr ( Customized for: Mian Badr ( Copyright © 2009 by, Inc. All rights reserved. All information in this book is subject to change without notice. Vault makes no claims as to the accuracy and reliability of the information contained within and disclaims all warranties. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without the express written permission of, Inc. Vault, the Vault logo, and “The Most Trusted Name in Career InformationTM” are trademarks of, Inc. For information about permission to......

Words: 71250 - Pages: 285

Commercial Banking

...for which the price is driven by the credit risk of economic agents (private investors or governments) (2)”. 3. “Optimum liquidity is achieved by balancing risks and returns. To be more specific, measures of liquidity need to be high enough to meet even unexpected changes in liquidity needs and sources (p.329).” A bank’s concern of having liquidity or the ability to convert an asset without a decrease in the price is important in the banking industry. In order to achieve such liquidity there are several things that can be evaluated such as: • The available assets easily convertible into cash. • The volatility of deposits. • The reliance of money market instruments and interest sensitive funds. • The ability to adjust rates on loans when rates on interest sensitive sources of funds fluctuate. Source: 1. 2. 3. Gup, E. Benton. Kolari, James W. Commercial Banking. The Management of Risk. 3rd Edition. 2005...

Words: 376 - Pages: 2

Investment Banking

...20458Investment Banking | | | Program: Associate of Business Administration (Financial Services) Course: Investment Banking Course Code: CM 20248 Tutorial Group: T03 (Monday) Tutor: Mr. Joseph MOHAN Date of submission: 5 November, 2010 Word Count: | | | | | | | | | | | | | | | | | | Investment Banking ________________________________________________________________________________________________________ Content * Proposal Purpose……………………………………………… | P. 3 | * Background of the Hong Kong-Zhuhai-Macao Bridge………. | P. 4 | * Benefit created by the HZMB………………………………… | P. 5 - 6 | * Financing Model of the HZMB……………………………...... | P. 6 – 7 | * Sponsors of the HZMB……………………………………...... | P. 8 | * Syndication Strategy………………………………………….. | P. 9 | * Risk Allocation Strategy. …… . . ……. . .…………………… | P. 10 | * Term Sheet. . . . . . .… . .…… . .…………………… .……… . | P. 11 – 12 | * Potential Risks and Risk Management…………………………. | P. 13 - 14 | * Conclusion…………………………………………………….. | P. 15 | * Reference……………………………………………………… | P. 16 - 18 | Investment......

Words: 2418 - Pages: 10

Investment Banking

...Why have you chosen to apply to this particular role and why at Barclays?Barclays recruits graduates into four business areas: Investment banking Global markets Business functions Personal and corporate banking The business area There’s a description of the four divisions in the business areas section of the bank’s website. Read the one for your chosen division, but, as some descriptions are light on detail, it’s essential your research doesn’t stop there. Barclays Early Careers & Graduates channel on YouTube is a useful source of information. It features short videos in which potential and current graduate and student hires at Barclays discuss aspects of their chosen business area and role. If you have done a summer internship or spring week with Barclays, or met recruiters or employers on campus, reflect on the information about the business that you obtained before you begin your application. Making notes would be useful at this stage. The graduate programme Each graduate programme fits into one of the four business areas above. For instance, technology, finance, treasury and compliance roles come under business functions. It’s important that you familiarise yourself with Barclays’ business structure to get a better understanding of how you’d fit into the business if you were taken on. The business areas section of the website includes descriptions of the sub-divisions that graduates are hired into. Read the one that applies to you and check......

Words: 839 - Pages: 4

Investment Banking

...Investment banking companies in Bangladesh are of two types: open-ended and closed-ended. The open-ended ones, generally referred to as mutual funds, repurchase shares in any quantity as and when holders offer them for sales. Thus, the amount of shares of the open-ended investment companies in market changes continually in response to public demand. Closed-ended investment companies sell only a specific number of ownership shares. An investor wanting to acquire shares of a closed-ended investment company must find another investor who wishes to sell. Investment companies do not take part in the transaction. In addition to selling equity shares, closed-ended companies issue a variety of debt and equity securities including preferred stock, regular and convertible bonds, and stock warrants for raising funds. Investment banks act as intermediaries between issuers and investors. The issuer sells securities to investment bankers who in turn sell the securities to investors. The investment banks own the securities until they are resold. For firms seeking to raise long-term funds, investment banks provide assistance through a number of functions including underwriting, marketing of securities, corporate finance, sale and brokerage, asset management and research. In underwriting, investment banks can protect themselves by forming a syndicate, which allows them to diversify the risk. One investment bank acts as the managing underwriter that oversees the underwriting activities of all......

Words: 964 - Pages: 4

Investment Banking

...Parker J Investment Banking Even though Bear was involved with investment trades around the world, the Fed did not grant Bear a government bailout. The Fed did step in to help maintain stability for the market, but LTCM for Bear was out of luck. Bear differed from its downward pressure on global securities prices, market stability, the possibility and probability to crash fast and hard, and the market environment was simply too hectic. Well first and foremost, the biggest change that could have been made, would be to hold the bridge tournament a couple months earlier. I believe that would have changed the outcome of Bear Stearns and allowed Cayne to save the day. All joking aside, from reading the article or case study, CDO’s and ARM’s were not the only destruction of Bear, just the final blow. Similar to what is happening in China right now with failing/decreasing hedge funds, Bear called in $500 million of short term debt to cover its losses from an unprofitable hedge fund. There was also a $38 million dollar fine paid to the SEC for fraudulent behavior. They were caught up in the CDO craze like everyone else and accepted way too many mortgages without knowing the details. Cayne must not have grasped the situation in its entirety. I can’t believe he announced they had $11.4 billion in cash and was now taking the situation seriously. The hole was much deeper than that. March 10, 2008, I believe, is where they were caught in the biggest fraud. Even though they......

Words: 524 - Pages: 3

Commercial Banking

...EGERTON UNIVERSITY TOWN CAMPUS FACULTY OF COMMERCE DEPARTMENT OF ACCOUNTING, FINANCE & MANAGEMENT SCIENCE NAME: OCHIENG JARED OPONDO REG NO: C12/60275/09 GROUP: A FACULTY: COMMERCE COURSE: BCOM 330; Financial Institutions and markets TASK: TERM PAPER TITLE: COMMERCIAL BANKING IN KENYA PRESENTED TO: MRS. BOSIRE MARY PRESENTED ON: 19TH October 2011 ABSTRACT: This term paper analyses the commercial banking system in Kenya. In particular it focuses on the history of commercial banks from a general perspective then narrows down to Kenya’s context. It looks at the importance of commercial banks in Kenya, the roles/functions of commercial banks. It then focuses on the regulations that govern the commercial banks. Lastly it looks at the contribution of commercial banks to Kenya’s economy. TABLE OF CONTENTS Abstract 2 Table of contents 3 Introduction 4 The history and development of commercial banks 5 Importance of commercial banks 9 Roles of commercial banks 10 Regulations of commercial banks 13 Contribution of commercial banks to Kenya’s economy 14 Emerging trends in banking 17 Summary 18 References 18 INTRODUCTION A commercial bank is a type of financial intermediary and a type of bank. It raises funds by collecting deposits from businesses and consumers via checkable deposits, savings deposits, and time deposits. It makes loans to businesses and consumers. It also buys corporate bonds and government bonds. Its primary liabilities are......

Words: 4777 - Pages: 20

Role of Investment Banking Bangladesh the Investment banking play a vital role in the progress of economic development. In this paper we have tried to analyze the role of investment banking and how it influences economic development of a country. Investment bank is a financial intermediary that performs a variety of services. Investment banks specialize in large and complex financial transactions such as underwriting, acting as an intermediary between a securities issuer and the investing public, facilitating mergers and other corporate reorganizations, and acting as a broker and/or financial adviser for institutional clients. Major investment banks include Barclays, BofA Merrill Lynch, Warburgs, Goldman Sachs, Deutsche Bank, JP Morgan, Morgan Stanley, Salomon Brothers, UBS, Credit Suisse, Citibank and Lazard. Some investment banks specialize in particular industry sectors. Many investment banks also have retail operations that serve small, individual customers. It indicates the prospect of investment bank is very high because long term relationships between business firms and investment banks are pervasive in developed security markets. A vast literature argues that better monitoring and information result from relationships. Thus, security markets should allocate resources better when an investment banking industry exists. We study necessary conditions for sustainable relationships and then explore whether policy can do something to foster them. 1. Introduction An investment bank is a......

Words: 2300 - Pages: 10

Is It Necessary to Separate Retail Banking from Investment Banking? Discuss Possible Advantages and Disadvantages of Such a Separation Using Academic Literature

... Introduction Over the last years, there has been a debate on whether commercial and investment banks should be separated or not. Especially after the crisis in 2007 when taxpayers had to pay billion in the US to bail out the banks, the need for a “ring fence” around retail banking operations became urgent. Universal banks use the retail deposit for their investment operations which engage great risks. When their investments fail, the states have to rescue them. These mega banks emerged after the Great Depression when such a mergence became possible mainly because of the deregulation of western financial services. However, if global capital markets agree in a ring fence or total separation, it is a procedure that will take place over a period of years. In this project a brief review of the debate that takes place around this matter will be presented, mainly by stating some of the ideas that are commonly discussed.  The Glass-Steagall Act and how we got here Recently President Obama proposed the separation of investment and retail banks, as it is believed that they were the main reason of the last financial crisis that started in 2007. Avgouleas (2010) points out that the mega banks were created after 1990’s due to the deregulation of the financial industry and they engaged great risk in their investment activities as the deposits (that were used for these purposes) were guaranteed by the government. Benston, G.J. (1994) points out that these mega banks became so large,...

Words: 953 - Pages: 4

Is It Necessary to Separate Retail Banking from Investment Banking? Discuss Possible Advantages and Disadvantages of Such a Separation Using Academic Literature

...deeper conditions that allowed those immediate causes to arise. While there is no question that investment banks and other financial institutions relied excessively on leverage and short-term funding, for example, the deeper question is how they came to do so and why such practices were so freely allowed. Similarly, while there is no disputing that relying on self-regulation in the form of banks’ internal models of value at risk and commercial credit ratings meant inadequate regulation, the deeper question is how this belief in the efficacy of self-regulation was allowed to develop. Failing to inquire into deeper forces may lead to regulatory reforms that address symptoms rather than fundamental causes, allowing those causes to again manifest themselves in the future in different but equally destructive ways. A more parsimonious way of putting the point is: if the causes of the crisis are so obvious in retrospect, why did so many smart people fail to appreciate the gravity of the situation prior to the event? ***** * * * * At the most fundamental level the causes of the current crisis go back to the Great Depression of the 1930s.1 A factor contributing to financial problems in that period, in conventional analysis, was conflicts of interest between the commercial- and investment-banking arms of large financial conglomerates. It was the tendency for the investment-banking division run by individuals with high risk tolerance to gamble the funds of small......

Words: 4633 - Pages: 19