Investment Banking's Impact on Global Economic Stability

Investment Banking’s Impact on Global Economic Stability


Banks are an inseparable part of any economy as they help in controlling the money supply in the economy by absorbing excess liquidity or pumping in additional funds during the time of economic contraction. Not just private individuals, banks offer financial support to organizations too, including government entities and private companies. Depending on the services offered, different types of banks have come up in the global economy such as federal banks, commercial banks, regional rural banks, small finance banks, etc. One such type of bank is an investment bank.

Role of investment banking in global economy

In the simplest terms, investment banks help individual entities of private organizations to raise funds and capital for starting a new venture, along with offering financial services at each step of the process. For raising these funds or capital, investment banks engage in trading of equities and debt securities in the market. As part of its core function, investment banking includes helping organizations to go public and offer them support to complete complex transactions like initial public offer (IPO) and underwriting.

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One of the most important functions performed by investment banks is that of overseeing mergers and acquisitions between companies and organizations. Apart from providing capital, investment banks provide consulting services to companies engaged in mergers and acquisitions on adjudging the true value of the company, how to divest assets, and completion of transactions. Funding of new projects, especially infrastructure projects, and designing their entire financial structure are two other major functions performed by investment banking in the global economy. Investment banks thus ensure that all the major macroeconomic parameters stay in control, thereby offering stability to the economy and increasing the trust between investors and companies.

Influential factors affecting the industry

The very role played by investment banks in the global economy is enough to understand the expanse of the investment banking industry. A report published by Allied Market Research has stated that the global investment banking market is expected to rise at a fascinating CAGR of 10.8% and garner a revenue of $213.6 billion by 2032. The most obvious factor behind the growth of the market is the expanding scope of the global economy. In the globalization era, the volume of global trade has ballooned. This has, in turn, increased the number of economic activities which naturally has aided the industry to rise in the last few years.

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Technological developments and digitization of financial services is another factor that will open up new opportunities for the industry. Almost all major investment banks including JPMorgan Chase & Co., Goldman Sachs Group, BANK OF AMERICA CORPORATION, etc., have taken the help of advanced technologies. For instance, JP Morgan in February 2022, announced their entry in the metaverse industry for increasing the level of financial engagements with its partners, customers, and clients. As per the statement released by the bank, it will help them to offer better services in the field of cryptocurrency and NFTs.

Investment banking, to summarize, has done a great job in stabilizing the global economy in the globalization era. Expansion in global trade and economy will naturally help this industry to surge ahead. Technological developments and digitization will further augment this growth rate of the market in the years to come.

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