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In the United States, the Glass-Steagall Act prohibited banks from offering both commercial and investment services. The Glass-Steagall Act was repealed by the Gramm-Leach-Bliley Act in 1999.

Investment Banks may sometimes be confused with brokerages, which are firms which assist people in choosing and buying stocks, bonds, and mutual funds. (Of course, it is possible for a brokerage and an investment bank to share common ownership, and most of the largest brokerage companies also do investment banking.)

1 The tools of investment banking

Investment banks can invest money on stock markets or use advanced products called derivatives. Investment banks can also invest money directly into companies, projects, etc., either as direct investments for which they carry the full risk (known as private equity, venture capital, or merchant banking ), or as loans with collaterals to reduce risks. Combinations of derivatives and loans also exist, such as mezzanine s.

2 The main activities and units

Investment banks will typically be concerned with several business units, including Corporate Finance (concerned with managing the finances of corporations, including mergers, acquisitions and disposals), often called the Investment Banking Division of the firm; Research (concerned with investigating, valuing, and making recommendations to clients--both individual investors and larger entities such as hedge funds and mutual funds--regarding sharesSee stock (disambiguation) for other meanings of the term stock A stock also referred to as a share is commonly a share of ownership in a joint stock company. The owners and financial backers of a company may desire additional capital to invest in new pro and corporate and government bondsBonds can refer to: A financial bond (including a Junk bond or a Zero-coupon bond) Barry Bonds A Chemical bond (including the ionic bond, covalent bond, coordinate covalent bond, metallic bond, hydrogen bond, Carbon-carbon bond, Disulfide bond and Glycosi); and Equities or Sales and Trading (concerned with buying and selling shares both on behalf of the bank's clients and sometimes also for the bank itself). Management of the bank's own capital, or Proprietary Trading, is often one of the biggest sources of profit; for example the banks may arbitrage in huge scale if they see a suitable opportunity and/or they may structure their books so that they profit from a fall of bond yields (a rise of bond prices).

3 Possible conflicts of interest

Because potential conflicts of interest may arise between different parts of a bank, the authorities that regulate investment banking (the FSAThe United Kingdom Financial Services Authority (FSA) is an independent non-governmental body that regulates the UK financial services industry. The FSA was created by the UK chancellor of the exchequer on May 20, 1997, and given statutory powers on Decem in the United KingdomThe United Kingdom of Great Britain and Northern Ireland is a state in Western Europe, usually known simply as the United Kingdom the UK Britain or less accurately as Great Britain . The UK was formed by a series of Acts of Union which united the formerly and the SECSEC redirects here. For other uses, see SEC (disambiguation The Securities and Exchange Commission commonly referred to as the SEC is the United States governing body which has primary responsibility for overseeing the regulation of the securities industr in the United States) require that banks impose a Chinese wall which prohibits communication between Investment Banking on one side and Research and Equities on the other.

These are some of the conflicts of interest involved in investment banking:

• The fact that most stock research companies (companies which are supposed to do research on a business and tell investors to buy or sell a company) are owned by investment banks can create a large conflict of interest. Historically, many investment banks seeking to be allowed to underwrite a companies IPO or debt offering have said to that company that they would tell their research division to rate that company a buy, in order to convince them to do a deal. Most observers allege that during the bull market of the 90's this would occour with almost every deal. The companies would choose the investment bank who had a large research division which would rate them a "buy", because that would likely increase the stock price of the company, which would increase the amount of money made by the companies CEO's since they were primarily paid by stock options, meaning they make more money the higher the stock price goes.

• The fact that many investment banks also own retail brokerages , can cause a conflict of interest. Besides the research division rating the stock a buy, the Investment bank may tell its brokers to try and convince their customers to buy the stock as well. This would occur not only as a thing to clinch the deal, but may also occour when the company might be performing badly and the Investment Bank might have a large supply of stock in its inventory. The investment bank can instruct the retail stock brokers to tell clients to buy the stock, so that the investment bank can get the poor performing stock off its hands. This "offloading of inventory" conflict of interest, more often effects the larger institutional clients of an investment bank.