The Essence Of The Middle Market Investment Bank

In foreign practice, the term “investment” usually denotes funds invested in securities for a long time. This is a theoretical reflection of real-life economic relations, since the mechanisms of investment in a market economy are directly related to the securities of middle market investment bank.

The investment activity of middle market investment banks

The investment activity of banks are providing two types of services:

• One of them is increasing cash flow by issuing or placing securities on their primary market.
• Another is the organization of a virtual meeting of buyers and sellers of already existing securities in the secondary market, that is the function of brokers and / or dealers.

Investments are understood both as all areas of placing the resources of a commercial bank, and as transactions for the placement of funds for a certain period in order to generate income. In the first case, investments include the entire range of active operations of a commercial bank, in the second – its urgent component. Bank investments have their own economic content. At the same time, the investment activity of banks has another aspect associated with the implementation of their macroeconomic role as financial intermediaries. In this capacity, banks help meet the investment needs of business entities. The demand for them in a market economy arises in monetary form. In addition, banks provide an opportunity to turn savings and savings into investments .

The investment activity of credit institutions

Considered from the point of view of an economic entity (bank), it is aimed at increasing its income. The effect of investment activity in the macroeconomic aspect is to achieve an increase in social capital. Consequently, from the point of view of macroeconomics, the criterion for classifying it as investment activity is the productive orientation of the bank’s investments.

Types of bank investments

Bank investments can be divided into the following groups:

• in accordance with the object of investment: investments in real economic assets (real investments) and investments in financial assets (financial investments).
• depending on the purpose of investments, bank investments can be direct, aimed at ensuring direct management of the investment object, and portfolio investments, which do not pursue the goals of direct management of the investment object, but carried out in the hope of receiving income in the form of a stream of interest and dividends or due to an increase in the market value of assets ;
• in terms of investment terms, investments can be short-term (up to one year), medium-term (up to three years) and long-term (over three years). Investments of commercial banks are also classified by types of risks, regions, industries and other characteristics.

Investment policy of middle market investment bank

The most important element of investment policy is the development of a strategy and tactics for managing the bank’s monetary and financial portfolio, which includes, along with its other elements, an investment portfolio. Investment portfolio (investment portfolio) – from The totality of funds invested in securities of third-party legal entities and acquired by the bank, as well as placed in the form of term deposits of other banking and financial institutions, including funds in foreign currency and investments in foreign securities.

Criterias for determining the structure

The criteria for determining the structure of the investment portfolio are the profitability and riskiness of operations, the need to regulate balance sheet liquidity and diversification of assets. Various principles and approaches to managing the investment portfolio of enterprises and banks are possible. The main content of the bank’s investment policy is to determine the range of securities that are most suitable for investment, and to optimize the structure of the investment portfolio for each specific period of time. At the same time, the bank’s council makes certain changes to it, taking into account the emerging market conditions.

Main attention of middle market investment bank

In any banking institution, regardless of the country of location, both in the implementation of credit and investment operations, the main attention is paid to the problem of balance sheet liquidity and control over the limit indicators for issuing loans. At the same time, the general goals and “rules of the game” are basically the same, the difference lies in the technique of organizing and carrying out operations. The problems faced by banks in carrying out investment operations are similar. The investment policy of commercial banks involves the formation of a system of target guidelines for investment activities.

Understanding of investment strategy

An investment strategy is the definition of long-term goals of investment activities and ways to achieve them. The development of an investment strategy is, therefore, the starting point of the investment management process. It provides for the determination of the volume and composition of specific investment investments. And the compilation of a model for making managerial decisions to exit the investment project.

Thus, when buying certain types of securities, banks strive to achieve certain goals, the main ones of which are:

• investment safety;
• return on investment;
• investment growth;
• liquidity of investments.

Analysis of the investment activities of banks

To analyze the investment activities of banks and assess its impact on the financial and economic indicators that determine the competitive advantages of the bank, the same sources of information are used that are used to assess the activities of the bank as a whole.

Therefore, these sources can be grouped as follows:

• • accounting financial statements;
  • constituent and financial documents:
    • constituent agreement,
    • bank charter,
    • list of shareholders,
    • licenses,
    • audit reports,
    • annual reports,
  • operational information;
  • information in the media:
    • ratings,
    • analytical and business articles;
    • information obtained from a third party;
    • the conclusion of specialized agencies,
    • the opinion of expert groups,
    • specialists, customer reviews.