A review of a biography of the British investment banker Siegmund Warburg states that Warburg believed: Investment banking should not be about gambling but about . . . financial intermediation built on client relationships, not speculative trading. . . . Warburg was always queasy about profits made from [investing] the firm's own capital, preferring income from advisory and underwriting fees.
a. What is underwriting? In what sense is an investment bank that engages in underwriting acting as a financial intermediary?
b. Is an investment bank that buys securities with its own capital acting as a financial intermediary? Briefly explain.