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Investment banks and the national economy

Mar 13,2024 - Last updated at Mar 13,2024

Investment banks play an important role in economic improvement by providing financing and financial resources to large and medium-sized companies and projects. They promote economic growth, create jobs, stimulate innovation in their communities. An economy based on investment banks constitutes a strong and effective economic model. In this model, these banks specialise in providing financial and investment services to individual clients, companies and governments. In general, the banking sector, especially investment banks, play a vital role in supporting the economy and promoting growth by providing financial services and financial innovation.

Investment banks are financial institutions licensed by central banks, they provide specialised services in the field of investment and financing for clients. They differ from traditional commercial banks that provide deposit and loan services to individuals and companies. These banks aim to meet the needs of clients who wish to invest in securities and other assets and to provide financial services related to investment and risk management. Investment banks are distinguished by their deep expertise and knowledge in the fields of investment and financing. The success of this economic model depends on the ability of investment banks to analyse the market, provide objective financial advice, and build extensive networks to facilitate transactions and financial dealings. The services of investment banks typically include financial market intermediation, asset management, wealth management, financial transaction arrangement, financial research and analysis, financial advice and executing transactions on behalf of clients.

Investment banks play a significant role in economic recovery by providing financing for companies, offering loans, credit, structured finance, and initial public offering (IPO). It also provides financial services, financial advice, assistance in mergers & acquisitions, asset management and trading in financial markets. Investment banks typically finance large projects such as infrastructure projects, industrial and agricultural projects. In addition to investment services in securities, which leads to increased liquidity in financial markets and encourages investment.

On the other hand, these banks evaluate financial innovation processes by developing new and innovative financial products and tools, such as derivatives, alternative investment funds and FinTech. Investment banks also deal with a wide range of financial instruments such as stocks, bonds, commodities, future options, and derivatives to achieve investment objectives for clients or diversify investment portfolios to manage risks properly. They provide a variety of financial services based on their specialty and the needs of the client, such as, investment management activities that include asset and portfolio management and financial research and analysis services, for instance, providing recommendations on stocks, bonds, and other financial assets, comprehensive financial advice such as investment planning to achieve specific financial goals. Investment banks also arrange and execute financial transactions such as IPOs, stock exchange listings, mergers & acquisitions, and bond issuance. They also provide structured finance services to companies and projects.

Furthermore, investment banks invest in startups and private equity. They provide funding for startups with high growth potential and high returns. They also provide mutual funds for investment where individual clients can buy units in these funds and benefit from diversifying their portfolios and achieving their goals. Investment banks also offer personal financial advice to individual clients to make the right investment decisions with an acceptable level of risk. Investment banks may provide loans to individual clients and offer personal banking services to distinguished clients such as deposit accounts, credit cards, and personal loans.

As for the economy, investment banks play an important role in stimulating economic activity and supporting investment. Their role involves providing financing for large and medium-sized investment and commercial projects such as infrastructure, renewable and conventional energy projects, technology, heavy industries, and agriculture. Investment banks play a key role in financing the economy and directing investment in the right way. These banks contribute to strengthening the financial market by managing assets, trading securities, and providing liquidity to markets to strengthen confidence in the financial system. Investment banks contribute to economic balance by funding projects that suffer from traditional funding shortages such as industry, agriculture and other sectors. On the other hand, it should be noted that the activities of investment banks may be exposed to significant financial risks due to the nature of their business and activities, and their clients may incur financial losses if investments are not successful and profitable. Therefore, the economy may be affected in general if these banks face severe financial crises, as happened in the US market in 2008. Hence, regulations and regulatory procedures should be established for the operation of these banks to ensure the sustainability of the financial system and the protection of investors.

Finally, it should be noted that the role of investment banks varies from one country to another according to the laws and prevailing economic conditions. These banks have contributed significantly to the development of many societies and countries. For example, they played a fundamental role in achieving sustainable development and significant progress in UAE, Qatar, Bahrain, Singapore, Hong Kong, Malysia, the United States and Europe. So why not play a major role in the development of Jordan to enable Jordanian economy to move to an advanced stage!! Jordanian banking legislations allows investment banks to operate in the local market and contribute to its development, so why not take a step that enhances the investment environment attractively to achieve the vision of His Majesty the King and His Royal Highness the Crown Prince for economic development.

 

Haider Al-Majali is an economist and investment expert

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