Organization and Management in Investment Banks: A Global Perspective

Determinants of Organization and Management

For any investment bank, the choice of management model depends on external factors as well as internal ones.

External factors include historical and cultural background and the financial market and regulation of the country or region where the bank runs its business. Internal factors include the bank's industrial positioning, business activities, and others.

External Factors

Market Environment Market environment factors have a wide reach. They include economic structure and total economic output of a country or region, level of development, application of information technology in the financial market, competition between different types of financial institutions, and competition among investment banks.

Regulatory System Regulatory system factors include choice and regulation of separation or crossover in financial institutions across different countries or regions, plus the financial innovation-related legislation and law enforcement in different legal systems.

Internal Factors

Attributes Much like form is decided by content, the particular management model of an investment bank is determined by its attributes and division of work. A simple comparison of investment banking and manufacturing and commercial banking provides an intuitive understanding.

Unlike physical products manufactured by a manufacturer, the "products" offered by an investment bank are nonmaterial services. The "production" of such services is an advanced process that combines capital, knowledge, wisdom, and experience rather than a process that involves physical tools and their movement.

Unlike commercial banks, investment banks offer a wide range of creative products in their underwriting, consulting, and other services. Such activities are more risky and challenging. It is these attributes that lead to the particular choice of management model in an investment bank.

Institutional Positioning and Business Activities Globalization enables an investment bank to offer its services in different countries or regions and to satisfy the needs of a variety of trades and customers. There are investment banks of different positioning, such as international banks with a global presence, large banks that do regional business, small banks that offer specialized services, and securities companies. Obviously, investment banks of different positioning choose their management models much differently.

Given that the range of investment banking is quite wide, financial institutions engage in different series of activities for market competition, historical reasons, or competitive edge in a particular expertise. Considering the huge characteristic difference of activities (such as brokerage and M&A advisory services), the choice of management model may vary among investment banks.