In nearly every major corporate transaction, you will find an investment bank at the center. When Saudi Aramco raised $25.6 billion in the world’s largest initial public offering, or when Facebook entered public markets with a valuation exceeding $100 billion, investment banks were the architects behind the scenes. They were structuring the deal, setting the terms, and connecting issuers with global capital.
Investment Banks play a critical role in the financial system. Their influence extends far beyond individual transactions. By facilitating access to capital and enabling strategic decisions at scale, investment banks help shape industries, influence markets, and, at times, impact entire economies.
This guide introduces the world of investment banking—what it is, what it does, why it matters, and where it draws both importance and criticism.
What Is Investment Banking?
Investment banking is the part of the financial services industry that helps large organizations raise capital, structure complex deals, and navigate financial markets. It exists because commercial banks, which focus on deposits and basic lending, are not built to manage multi-billion-dollar equity offerings or cross-border mergers.
Investment banks act as intermediaries between those who need capital and those who have it. They help clients issue securities, advise on corporate strategy, and provide market access at institutional scale. They do not take deposits from the public. Instead, their business is built around transaction expertise, investor networks, and market knowledge.
The most important distinction is this:
Investment banks do what commercial banks cannot.
What Investment Banks Actually Do?
Investment banks are best known for advising on billion-dollar mergers or helping companies go public, but their work extends far beyond headline-making deals. Investment banks perform three main activities that keep capital flowing through the global economy: capital raising, advisory, and market services.
One of the most visible services investment banks provide is helping companies raise money in the capital markets. This can happen through issuing equity, such as shares in an initial public offering (IPO), or through debt, such as bonds sold to investors. These deals are designed and executed by teams of bankers who price the securities, market them to institutional investors, and ensure they comply with regulatory requirements. The scale of these operations is massive. In 2024, global investment banks helped companies raise over 741 billion dollars, according to Dealogic. This funding supports corporate expansions, job creation, technological innovation, and infrastructure development worldwide.
Another critical role is mergers and acquisitions advisory, often referred to as M&A. Investment banks advise companies on buying, selling, or merging with other businesses. These transactions can reshape entire industries, create market leaders, or help struggling companies find new strategic directions. For example, when Microsoft announced its 69 billion dollar acquisition of Activision Blizzard in 2022, investment banks like Goldman Sachs and Morgan Stanley were behind the scenes advising on the structure, pricing, and negotiation of the deal. That transaction aimed to strengthen Microsoft’s position in the gaming industry, directly impacting competition, jobs, and product development in a sector that serves millions of consumers globally.
In addition to raising capital and advising on deals, investment banks provide market services through their sales and trading divisions. These teams help clients buy and sell financial assets such as stocks, bonds, currencies, and derivatives. Their work ensures liquidity in the markets, allowing investors to enter and exit positions efficiently. While this side of the business is less visible to the general public, it represents a significant share of investment bank revenue. According to Coalition Greenwich, trading activities generated more than 55 billion dollars in revenue for the world’s top investment banks in 2023 alone.
Some investment banks also offer research and risk management services, helping clients understand market trends, assess valuation, and manage exposure to financial risks like currency fluctuations or interest rate changes. These services are highly valued by institutional investors, corporations, and even governments that rely on expert insights to make informed decisions.
Taken together, these activities make investment banks central players in the financial system. They connect capital with opportunity, helping businesses grow, economies expand, and markets function smoothly on a global scale. (read more)
The Structure of the Investment Banking Industry
Not all investment banks operate the same way. The industry is divided by scale, service offering, and client type. At the top are global full-service institutions often referred to as bulge bracket banks. These firms, such as Goldman Sachs, JPMorgan, and Morgan Stanley, operate across all major markets and provide a broad range of services including capital raising, M&A advisory, trading, and asset management. They typically serve large multinational corporations, sovereign entities, and institutional investors.
Below them are middle-market investment banks. These firms focus on smaller transactions and regional clients. They often offer many of the same services as bulge bracket banks but on a narrower scale. Their clients may include family-owned businesses, private equity firms, or regional corporations seeking advisory or financing support.
At the more specialized end of the spectrum are boutique investment banks. These firms usually concentrate on one or two services—most commonly M&A advisory—and may focus on specific sectors such as healthcare, technology, or energy. Boutique banks often compete with larger institutions on the basis of deep expertise, leaner deal teams, and stronger senior-level attention.
Each type of bank plays a different role, but all contribute to the same goal: helping clients make better financial decisions and access capital efficiently. The choice of bank depends on the complexity of the transaction, the size of the client, and the need for either global reach or specialized insight. (read more)
Why Investment Banking Matters
Investment banking is about matching capital with opportunity. When a company raises money to expand into a new market or invest in new technology, that capital allocation helps drive economic activity. When a merger leads to a more efficient or competitive firm, it can lead to better products or services. When investors want to buy or sell large blocks of securities, investment banks provide the liquidity that allows markets to function smoothly.
In many cases, investment banks are the only institutions capable of executing complex transactions at a global scale. Their ability to manage risk, navigate regulation, and mobilize capital quickly makes them a necessary part of the modern financial system. (read more)
Criticism and Controversies
Despite their importance, investment banks are not without criticism. Some of the most serious issues stem from conflicts of interest. Banks often advise companies while also raising capital or trading their securities. This creates pressure to prioritize relationships or profits over impartial advice.
Another area of concern is excessive risk-taking. In the lead-up to the 2008 financial crisis, several investment banks engaged in complex trading strategies and securitization practices that amplified systemic risk. The collapse of firms like Lehman Brothers exposed weaknesses in oversight, capital buffers, and internal controls.
Opacity is also a recurring criticism. Many of the deals, models, and trading strategies used by investment banks are difficult for outsiders—including regulators and shareholders—to fully understand. This can make it hard to assess risk or hold institutions accountable.
Since the global financial crisis, new regulations such as the Volcker Rule and Basel III have aimed to address some of these issues. However, debates about transparency, regulation, and the social value of investment banking continue to shape the industry. (read more)
Final Thought
Investment banking fills a narrow but essential role in the financial system. It connects issuers and investors, helps companies grow, and ensures markets remain liquid and efficient. At the same time, it operates in a high-stakes environment where the pressure to succeed can lead to conflicts and risks. Understanding what investment banks do—and how they affect the broader economy—remains important for anyone seeking to engage with capital markets or evaluate the forces behind corporate finance.