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What is International Investment Banking?

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  • Written By: M. McGee
  • Edited By: Lauren Fritsky
  • Last Modified Date: 09 May 2019
  • Copyright Protected:
    2003-2019
    Conjecture Corporation
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International investment banking is a branch of the banking industry that deals with specific areas of cross border investments. Investment banks have two primary purposes. First, they provide capital to businesses to start up or grow in new directions. Second, they facilitate the movement and holding of money when two or more non-trusting companies need a third party’s help. International investment banking puts a new kink into the operation since entities also need to deal with both foreign and international monetary policies in addition to their own.

In the United States, investment banks and normal commercial banks are two totally different things. A commercial bank is the kind most people think of when the term "bank" comes to mind. They have personal accounts, take deposits, offer checking and so on. An investment bank doesn’t do any of these things, but instead solely exists to hold money, offer business loans and deal with large corporate holdings such as pensions. As a result, investment banks operate under a different set of rules than commercial banks.

Since the banks in the US are separate, it isn’t unusual for large banks to actually be two banks, one commercial and one investment. In other countries, this is generally less of an issue, since most developed nations don’t maintain a distinction between the different banking types. This difference is just one of the reasons that international investment banking is a tricky subject.

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The main part of international investment banking is finding a middle ground between the laws and customs of one area and the laws and customs of another. In one country, a seller may have one set of rights while in another, the buyer could have a totally contradictory set. These differences are usually ironed out in an agreement between the two parties and overseen by the bank. In this case, the bank operates as a neutral third-party to make sure one side doesn’t have an unanticipated advantage over the other.

Since international investment banking deals with the movement of large amounts of non-equivalent currency, banks also can convert money from one form to another. This aspect of the bank is one of the few areas where private individuals may use the bank’s services. If a person is traveling to a different country and wants to avoid using the local banking system, he or she can convert currencies at an international investment bank.

Since international laws are often very complex, it isn’t unusual for an international investment bank to specialize in a handful of countries or a single region. For example, a US bank may only deal with countries in South America or Eastern Europe. This allows that bank to have a more detailed understanding of the local investment climate and provide better services.

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