An investment bank is a financial institution that raises capital, trades in securities and manages corporate mergers and acquisitions. Investment banks profit from companies and governments by raising money through issuing and selling securities in the capital markets (both equity, bond) and insuring bonds (selling credit default swaps), as well as providing advice on transactions such as mergers and acquisitions. To perform these services in the United States, an adviser must be a licensed broker-dealer, and is subject to SEC (FINRA) regulation see SEC. Until the late 1980s, the United States maintained a separation between investment banking and commercial banks. Other developed countries (including G7 countries) have not maintained this separation historically. A majority of investment banks offer strategic advisory services for mergers, acquisitions, divestiture or other financial services for clients, such as the trading of derivatives, fixed income, foreign exchange, commodity, and equity securities.

Trading securities for cash or securities (i.e., facilitating transactions, market-making), or the promotion of securities (i.e., underwriting, research, etc.) was referred to as the "sell side".

Dealing with the pension funds, mutual funds, hedge funds, and the investing public who consumed the products and services of the sell-side in order to maximize their return on investment constitutes the "buy side". Many firms have buy and sell side components.

The last two major bulge bracket firms on Wall Street were Goldman Sachs and Morgan Stanley until both banks elected to convert to traditional banking institutions on September 22, 2008, as part of a response to the U.S. financial crisis. Barclays, Citigroup, Credit Suisse, Deutsche Bank, HSBC, JP Morgan Chase, Banco Santander, BBVA and UBS AG are "universal banks" rather than bulge-bracket investment banks, since they also accept deposits (though not all of them have U.S. branches).

Main activities and units

On behalf of the bank and its clients, the primary function of the bank is buying and selling products. Banks undertake risk through proprietary trading, done by a special set of traders who do not interface with clients and through "principal risk", risk undertaken by a trader after he buys or sells a product to a client and does not hedge his total exposure. Banks seek to maximize profitability for a given amount of risk on their balance sheet. An investment bank is split into the so-called front office, middle office, and back office.

Front office

• Investment banking is the traditional aspect of the investment banks which also involves helping customers raise funds in the capital markets and advise on mergers and acquisitions. These jobs pay well, so are often extremely competitive and difficult to land. On a similar note, they are extremely stressful. Investment bankers frequently work 80 to 100 hours a week, often working well past midnight and during weekends.Fact: date=April 2009 Investment banking may involve subscribing investors to a security issuance, coordinating with bidders, or negotiating with a merger target. Other terms for the investment banking division include mergers and acquisitions (M&A) and corporate finance. The investment banking division (IBD) is generally divided into industry coverage and product coverage groups. Industry coverage groups focus on a specific industry such as healthcare, industrials, or technology, and maintain relationships with corporations within the industry to bring in business for a bank. Product coverage groups focus on financial products, such as mergers and acquisitions, leveraged finance, equity, and high-grade debt and generally work and collaborate with industry groups in the more intricate and specialized needs of a client.