Basically there are two recognized functions of investment banks one is capital market intermediation and trading. These both are separate when it comes to functions that are associated with commercial banks from the ones that accept deposits and make loans. These investment banks work as critical agents for capital deposits and they also maintain price setting. These banks also help in coordinating the present and future consumption.
We all know that the function of investment banking and commercial banking are different. The functions of banking are different in United States when compared with the rest of the world. In 1933 the US congress passed an act which is also known as Glass Steagall act. The major provision of this act is the legal distinction among the investment banks and commercial banks. Another law says that it will be considered as illegal if any one company is found to perform business like both companies. San Fransisco banking is also responsible in maintaining the economy.
Investment bank won’t be able to accept deposits or make loans. On the other hand commercial banks won’t be able to have security issues but no restrictions have been applied to foreign investments. After considering all these laws US is the only country that legally separate both investment and commercial banks.
As well all know the government and big companies rely in the investment banks in order to raise funds to develop the business or fulfill the business needs. In the past the investment banks provide securities to the investors and this is also known as adding liquidity to a market.
These investment banks are considered as intermediaries or the middleman because they take money from the customers and invest in the companies to which customers say. These banks help a lot in financial improvements and help business grow more quickly.
Investment banks works in combination with commercial banks which help to determine the market interest rates and upcoming privileges. There are interest rates of both investment banks and commercial banks are different but their rates influence each other greatly.
Investment banks and commercial banks are considered as the back bone for every country and if their business goes down the economy of the company go down. The more the business of these banks the better will be the economy of the country.
In short these banks are responsible to handle the economy of the country. That’s the reason why these banks are considered as backbone.