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Commercial banks are those that deal with collecting private collective savings, lending money in the form of mortgages, loans, cash loans and more. Investment banks are those that deal with underwriting bond issues, making investments in listed financial instruments and this whole category of tasks.
Commercial banks are credit intermediaries, while investment banks do not. Investment banks are securities brokers and investors in their own right, even if with limits. Moreover, investment banks allow their clients to buy and sell financial instruments acting as intermediaries between savers and exchange systems.
The Main Reason
The reason why the law of most industrialized countries provides for a bank to be able to deal only with one or the other. Imagine a bank that lends money to a company and at the same time buys its shares or shares and becomes its owner.
A clear conflict of interests would be created because, if the company went bankrupt, the bank would also begin to suffer severely due to the devaluation of its shareholding and to the bad debts owed to the bankrupt company.
Furthermore, it would have an interest in cutting credit lines to potential competitors of the company in which it holds the shares, compromising the competitive ecosystem of a territory.
Investment funds
We have already met them talking about listed instruments, as open funds (those in which anyone can invest) sell and buy back their shares according to a trading system regulated by price lists. In any case, in this guide we focus more on their role as intermediaries.
The funds, both active and passive, operate as financial intermediaries from the moment they allow savers to do two things:
Diversify the investment by buying just one asset. When you buy shares in a fund, you are implicitly investing in all the securities that the fund has in its portfolio and that, to buy individually, would need much larger amounts than the amount paid for a share.
Intermediate cuts
This is a typical financial expression that refers to the way in which the funds buy huge amounts of securities in a single solution, thus drastically reducing trading commissions on a single stock or bond. The odds are then exchanged with low commissions, as they are less complicated and more public-oriented instruments. This means that thanks to the intermediation of a fund, you save overall in commissions.
The role of the SGRs
Although it is more intuitive to trace the brokerage directly to the funds, we must necessarily appoint the SGR (Savings Management Company) like Landmark Financial Seoul Korea.
The law provides that only this type of company can set up actively managed funds and promote their investment with the public. They are also among the few financial institutions that deal with leveraged derivatives – a bit like online trading – because they can create hedge funds in which this type of instrument is also present.
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