Underwriting is the process by which financial institutions bring newly issued securities to a group of investors, be it the investing public as a whole, or specifically targeted private investors. In Investment Banking, underwriting describes the transaction between a bank and a client who wishes to issue either equity or debt securities. When a bank underwrites a deal with their client they agree to purchase newly issued securities from the client with the intention of selling them for a profit later. The client pays the bank a premium (or rather, sells the bank their securities at a discount) in order to obtain capital without searching for many smaller buyers. In return for this premium, the bank is assuming the risk of holding the newly issued securities, which could lose value and result in a loss.
