Investment Banking Business Model and Financial Stability The banking industry forms an integral part of any economy. It is the unit of the economy that serves to finance all the other sectors. Through the banking system, businesses can obtain credit and move within the meaningful circle. In every sense, banks fulfill the financing needs of the players in a business setup. The number of companies that are seen to take place in life is all related to the ability to finance their activities. The use of banking instruments to regulate the economy also serves a meaningful role in the economy. This is the role of the investment banks. The central bank in every country serves the role of regulating all the other banks and ensuring fair play in the trade. Banks can either be classified as investment banks or retail banks. Their mandate is distinct and well vouched in the rules and regulations of banking.

Business Models of Retail Banking and Investment Banking

Retail banks and investment banks are the two major categories of banks in existence. Retail banks are there to fulfill the credit needs of business units and individual borrowers. They also offer savings services. They are many all over each country due to the high need for their services. These are services that are provided meaningfully through the practice of day-to-day business. Retail banks have a role avail credit and make it possible for industry players to run businesses and make it possible for them to run smoothly. The bank's role is to handle issues that border on the financing and the accumulation of short-term capital for businesses and individuals in business. In modern economies, banks also double up as investment partners to other entities. They make the largest stake of the banking industry.

Investment banks are there to help investors generate wealth through investments. They took in money from investors and put them investment projects of both short-term and long-term nature. The returns they make will go to their income accounts and given out to the investors. The business they engage in is sustainable since returns are uniformly flowing. In a good market, investment banks have the biggest asset base since all entities are into investment. Consequently, they will be in a position to handle all economic shocks in the system. They have a chance to bring in more revenue to their accounts with the increase in the number of investors. Therefore, a more financially literate society is good for investment banks because they will make more income from their saving habits.

Banking does not operate without regulation. There are high stakes from both the business units and the government in the operations of banks. This makes it necessary to have a unitary system that ensures that all operations are controlled from a central position. This is where the central bank comes in. Each country has a central bank to regulate the operations of retail banks and investment banks. The business level of any bank is determined by the frequency of its transactions and how to satisfy the conditions set out in the regulations. Cases of fraud are likely to happen from an insatiable hunger from unscrupulous players. Banking cannot best operate without a regulator that checks the operations. Businesses need to be streamlined to fit the right procedures that are well defined and fall under the right code of ethics (De Jonghe, 2009). The central bank has a role in meeting demands of safety and assurance of quality in the administration of banking services. They best to dwell on their ability to determine what goes on in the management of banking services. This role cannot be written off due to the high risks of the business that is likely to be encountered from this business.

Retail banks have distinctly different modes of operations with investment banks. The former are modeled to generate revenue from small but numerous transactions that emanate from individuals. The business is smoothly operated in ways that make it possible for entities to obtain all kinds of loans and make deposits as they wish. Most banks are interested in making a profit from lending. This might easily drive them to overcharge borrowers on their amounts. This is where the central bank comes in to regulate on charges. Retail bank model is one that works on the premise that people have to be empowered to secure funding so as to meet what they expect from business arrangements (Hryckiewicz, 2010). It is this kind of connection that ensures that people are made to understand the meaning of obtaining credit and working for its returns.

It is designed to propel economic growth trough capital creation. Investment banks receive monies from individual and corporate units and invest them on their behalf. This serves the economy at large by availing better ways of saving and creating revenue. Governments have stakes in these investment banks. They use them to generate income and stabilize the economy. The fact that people can be made to keep their money somewhere makes economic sense for the government since it will easily use the same to generate income will fund many projects. The government does borrow from the public through investment banks as agents. It is easy when working the agents reaching out to the public because they are in business (Hryckiewicz, 2010). This nature makes them aggressively generate revenue by marketing their business options as needed to make this business great. The government as the interested party is tasked with the responsibility of securing the welfare of the investors by holding such business entities to account. Regulations that are existence are all linked to prohibiting cloudy transactions by encouraging transparency and accountability. Companies in this field are all linked to the ability to win the trust of potential investors. This kind of activity can best be addressed through ways that popularize saving more unlike spending. The savings culture is good for the country. It secures the people's interest at a private level and making it possible for the country to progress economically. The investment bank model is a recommended response to the problems touching on individual responsibility on financial management. This kind of business model serves the interests of both the investor and the bank. Security of finances is a benefit to the investor while improved individual investment benefits the bank. Operating float is a measure of success performance for the business. The more such float is attained, the more efficient the investment banking gets.
The connections between retail banking and investment banking are linked to the nature of the trade that happens in their operations. Both banks depend on the individuals' and business entities for their float. They operate on monies deposited with them for various uses. Some of it are invested while others are lent to borrowers at a fee. This happens for retail banks. Investment banks, on the other hand, depend on their ability to generate income from deposited monies by investing in projects of their preference. The two banks achieve a common purpose of generating income from public money.

Relationship between Investment Banking Business Model and Financial Stability

Financial stability happens through regulation on inflation and interest rates. The control of these two variables is a role that falls under the mandate of the central bank in any country. Financial stability is best attained when the volumes of money in circulation is well checked. Too much money is as undesirable as a shortage of the same. One way in which the investment banks help to maintain financial stability is by controlling the amounts that people have in their pockets. The amount can be made high or low depending on the needs of the economy.

Investment banks fulfill the role of maintaining financial soundness as an agent of the central bank. The central bank performs this role by altering bank rates and deposit amounts they require from the investment banks. In an event where too much money is in circulation, the inflation index goes up. This is an undesirable situation in the economy and has to be rectified. The central bank will thus institute that investment banks reward high-interest rates on returns. This will encourage people to save more. Once this happens, it will reduce the amount held by the people. One way of making the investment banks reward more is by enabling them access more lenient terms from the regular. It is also achieved by issuing directives to the effect of making them award more rates on returns (De Jonghe, 2009). During a period of low money volumes in circulation, the investment banks are made to reward lesser rates on investment. This will make investors discouraged from saving. Once this is achieved the amount in circulation will this be increased to the desired level. This will check the inflation level by making it possible for people to operate at increased money volumes.

Financial stability influences the directions that economic developments take. Such parameters…