Conflict of Interest in Investment Banking
February 12, 2025
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Governments all over the world regularly engage in high-value financial transactions. They often need the help of experts in order to do so. Since investment banks have a lot of experience in mediating high-value transactions, they are often appointed by the governments to be their advisors on these matters. In this article, we will have a closer look at the various modes under which investment banks regularly engage with governments all over the world.
The nature of engagements between investment banks and governments can be many. However, the main modes of engagement have been listed below:
After the Second World War, a lot of governments all over the world ended up with the possession of a lot of public sector companies. For instance, essential services like water, electricity, and telecommunications were owned by the government in most parts of the world. However, as time went by, governments found out that they were not best suited for running these businesses. As a result, governments all over the world started disinvestment, i.e., selling of government-owned assets to private companies. Here, since businesses are being sold, it is obvious that they would require the services of an intermediary like investment banks.
Bulge bracket investment banks are known to have close relationships with the government since their services are often enlisted while pursuing disinvestment.
In many cases, the government does not want to sell out the underlying asset. Instead, it simply wants to improve the functioning of these private sector entities. Here too, the services of investment banks are enlisted. Some of the common areas in which the advisory services of investment banks is sought out have been listed below:
Lastly, governments all over the world issue debt on an ongoing basis. Just like private companies, they too need an intermediary who can manage their issue, take it to the market and sell it to final investors. Here too, the services of investment banks are used. In fact, since governments tend to roll over debt, i.e., pay the old debt by issuing new debt, they are often continuously engaged with investment banks who manage one issue after another.
The bottom line is that investment banks share a deep partnership with government agencies as well. They advise the government and even act as intermediaries in several different matters.
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