Critically Evaluate The Role Of Investment Banks In The

1121 WordsMar 10, 20175 Pages
Critically evaluate the role of investment banks in the process of financial intermediation. Your analysis should consider the users and providers of funds. You should support your analysis by using academic sources as well as relevant data and charts taken from Bloomberg. • Consider how valid and reliable the research is: what are its strengths and weaknesses? Appendix A An overview of the financial intermediation process Source: Allen, Chui, and Maddaloni (2004) Lenders (issuers of financial securities) can supply funds to the borrowers (investors in financial securities), who are mainly firms, governments and households, either through financial markets, or through banks and other financial intermediaries such as mutual funds.…show more content…
Another graph, displayed below, supports the idea of economies of scale achieved by investment banks: Source: https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0ahUKEwje1PHUjMjSAhXKJcAKHTWjA-IQFggaMAA&url=http%3A%2F%2Fwww.mckinsey.com%2F~%2Fmedia%2Fmckinsey%2520offices%2Funited%2520kingdom%2Fpdfs%2Fwinning_in_flow.ashx&usg=AFQjCNHY1gXKe5t6yydmFT0EpEwEe6EP-A&bvm=bv.149093890,d.ZGg&cad=rja` We can clearly observe a negative relationship between the number of trades and the cost per trade, implying that banks can benefit from economies of scale by engaging more in trading activities (up to a certain point, where the function becomes more or less constant). Appendix D Post-crisis regulations effect on trading assets Source: https://www.bloomberg.com/professional/blog/liquidity-may-pay-price-for-regulators-risk-reduction-goals/ The regulations caused banks to face larger capital costs, therefore cutting profitability and the willingness to hold bond inventories. This led to a 10% fall in the trading assets of the six largest American banks since 2009. Appendix E Some limits on the role of investment banks as intermediaries A number of authors have
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