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I'm reading "Too Big To Fail" about the 2007 financial crisis, and there's a lot of discussion about the big investment banks: JP Morgan Chase, Goldman Sachs, Bear Stearns, Lehman Brothers, etc.

I've understood the strict definition of "investment bank" to mean a financial institution that finances companies through the management of IPOs.

However, from the sounds of it, the big "investment banks" are just...generalized investment companies? They might do some IPO work, but they seem to spend a lot of time and make a lot of money doing their own trades in stocks, bonds, real estate, currencies, etc.

The more general definition is something like: a company that makes money from varied financial transactions? It seems that actual IPOs are just one part of a much broader set of financial practices.

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An investment bank is indeed related to more than IPOs or what is also called Underwriting.

As you have noted, it also deals with trading real estate, commodities, currencies, bonds, market indices & other financial instruments.

Looking at the larger picture, investment banks mainly deal with providing Financial Advisory services, facilitating Mergers & Acquisitions of corporations, and Research ranging from equities to macroeconomic data.

Their clients include not only businesses, but pension funds, other financial institutions, governments, hedge funds, and even individuals called retailers.

Thus, a more accurate general definition of an investment bank is like what DavidHassel has answered:

A financial services company that acts as an intermediary in financial transactions.

To answer your other question, any investment bank should offer underwriting services. A company can choose one or multiple investment banks to handle its IPO processes.

Typical investment bank services

[1] Investment Bank: https://www.investopedia.com/terms/i/investmentbank.asp#citation-1

[2] Under Securities Underwriting: https://www.investopedia.com/terms/u/underwriting.asp

Photo source: https://efinancemanagement.com/financial-management/types-of-investment-banking

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This is a pretty good definition, I think - "An investment bank is a financial services company that acts as an intermediary in large and complex financial transactions. An investment bank is usually involved when a startup company prepares for its launch of an initial public offering (IPO) and when a corporation merges with a competitor. It also has a role as a broker or financial adviser for large institutional clients such as pension funds." - Duke University, Department of Economics. "What is An Investment Bank?, https://econ.duke.edu/sites/econ.duke.edu/files/file-attachments/Investment%20Banking%20Demystified.pdf

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  • $\begingroup$ Does every investment bank do IPO work? Or do some just invest for themselves? $\endgroup$
    – Deane
    Aug 17, 2022 at 21:53

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