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How an Investment Bank Is Actually Organized

Wall Street Mechanics — The Insider Curriculum • Beginner Investing • 7 min

What this lesson is about

"Investment bank" covers several genuinely different businesses operating under one roof. And the walls deliberately built between some of them.

2 parts · a quick check after each · then the quiz

Part 1 of 2

The term "investment bank" often gets thrown around to describe a whole institution. But a large investment bank actually includes several different businesses under one roof. Each has its own functions and incentives. Importantly, there are deliberate barriers between some of them. The sales and trading division is the one most involved in the daily buying and selling of securities. This includes the market-making function discussed elsewhere in this module. It’s the fast-paced, market-facing side that many people picture when they think of "Wall Street." On the other hand, investment banking refers to a different role: advising companies on mergers and acquisitions. It also helps companies raise capital, which includes managing the IPO underwriting process covered in a dedicated lesson in this module.

Tall or flatWiden the span and the layers collapse.

Quick check

What does the "sales and trading" division of an investment bank primarily do?

Part 2 of 2

Research is another distinct function. Analysts publish investment analysis, financial models, and ratings on companies. It's crucial that research operates independently from the bank's trading and investment banking activities. This is a regulated requirement, not just a preference. Otherwise, a research analyst's rating could be influenced by the bank's trading positions or its desire to win future investment banking business from the company being analyzed. Asset management is typically a fourth function, where the bank directly manages client investment portfolios.

Insider Angle: The system that keeps these divisions separate is known as the "Chinese wall," or sometimes an ethical wall or information barrier. This isn’t just a metaphor. It’s a real, regulated policy structure meant to stop confidential or conflict-generating information from flowing between divisions with different, sometimes competing, incentives. For instance, an investment banker working on a confidential merger deal shouldn't share that info with the bank's trading desk. Otherwise, they could trade on knowledge that the rest of the market lacks. This structural safeguard connects to this platform's lesson on IPO conflicts of interest, applying across the bank's full range of divisions, not just underwriting.
Try This: Look for a large investment bank's public disclosures or website to learn about its business segments. Identify at least 3 distinct divisions it operates and research what specific conflict-of-interest safeguards it maintains between them, if disclosed.

Quick check

What does the "investment banking" division (in the narrower, specific sense of that term, distinct from the whole institution's name) primarily do?

Quiz

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