Kumeiko O. M., Rieznik M. A.
Investment Bank is a specialized credit institution which attracts long-term loan capital and provides it to borrowers (businesses and the state) by issuing bonds and other types of debt securities. The main functions of the investment bank are to determine the nature and size of the financial needs of borrowers, agree on the terms of a loan, choose the type of securities, and decide on the time for their issue and distribution among investors. Investment Bank is not just an intermediary between the investor and the borrower, but also a guarantor of the issue and organizer of the market.
An interesting feature of domestic investment companies is that, like western investment banks, they are structures with all major investment units: investment banking, asset management, brokerage service, financial market research, etc.
As the specialized
investment banks are exposed to much greater risks (in comparison with the
universal ones), the scope of their activities is under more strict
regulations. Thus, the Instructions on how to regulate the activities of banks
• regulatory capital adequacy (H2) – not less than 20%;
• ratio of regulatory capital and total assets (ÍÇ) – not less than 12%;
• total investment amount (Í²2) – not more than 90%;
• attracting deposits of individuals should not exceed 5% of the bank's regulatory capital.
In September 2012
the most authoritative banks in the global «investment banking» were the banks of so-called Big Five of Wall Street:
JP Morgan Bank of
In our opinion, a system of investment risk management is of enormous importance in the investment bank model. We believe that the operation of such a system will enable the bank management to not only effectively anticipate and forecast potential losses, but also determine the market conditions and identify possible discrepancies. The main imbalance in the segment of the investment market is an imbalance in the ratio of savings and investments. However, some disparities go beyond national economies, namely:
1) global current account imbalances;
2) shifting the focus of cross-border capital flows with the prevailing investment from developed countries to the corporate sector of other countries or the capital flight from developing countries;
3) preservation of advanced trends of inflation coupled with the increase in real GDP in most countries;
4) reduction of the share of industrialized countries in total global savings;
5) maintaining the low level of real long-term interest rates in most countries and the decrease in investment in almost all industrialized countries in recent years at a level of about 20% of GDP.
The need for functioning of such specific financial institutions as investment banks stems from their institutional character, as they are professional investment market participants who have outstanding skills of accumulation of long-term resources and their rational placement. Despite that, investment banks can be a reliable partner for both issuers and investors that will distinguish them (investment banks) as the driving force of the domestic stock market.
To determine the
prospects of investment banking institutions in
Ownership of the bank, in our opinion, should be public. First of all, it will help to effectively control the use of budgetary funds as one of many sources of bank resources to implement priority investment projects.
As for the resources, it would be reasonable to remove the regulatory restrictions of the funds of physical persons, while they should be attracted only on the long term basis, i.e. the period over 1-3 years.
The priority in the scope of activities of a bank, of course, should be given to the implementation of investment projects that are significant for the domestic economy and are based on innovation. However, we believe there should be a moratorium on a consumer lending area for specialized investment banks, because their mission is to develop and not to «eat away».