How Did The Modern Investment Bank Of Today, Come To Be?

For numerous finance aspirants and enthusiasts, throughout the ages, these global investment banks, have become symbols, which inspire awe, curiosity and intrigue. They have been on the global scene since a long time, comfortably co-existing beside, the major rise and fall of the global trade and capital, over the years. Let’s being with the historical perspective, when the father of economics, Adam Smith, famously stated that capitalism, is symbolic of an invisible hand guiding the market and directing it in the allocation of goods and services. There was a time when the key players in the field of finance, were the countries of Britain and the Netherlands. Then came the era of two distinct banking models, emerging at the height of their popularity.

The merchant banks, which went to become symbolic as an inspiration for all the financial firms, which many leading families would soon establish, in what was to become the present day market. While the older version of these merchant banks, were quite largely a private affair, where the families would put in their personal income, as the capital of the firms. But this scenario, underwent an impressionable change, with a new merchant bank model coming to the fore. These merchant banks usually indulged in the seeking capital, by selling securities to third party or public investors. These investors, then were able to sell the securities or trade them in the organised security exchanges, in prominent nations like London and New York.

This gave rise to the a set of firms, which were basically involved in becoming underwriters, they would be representatives of the issues in front of the investing public and thus would successfully negotiate and facilitate all of the details of the issuance. This was how investment banks came into existence, during the latter half of the 19^th Century. While there were a number of firms, which busied themselves in purely just issuing and selling of securities, there were some big guns like, JP Morgan, which did not limit themselves to just that, but also began to dabble in the field of commercial banking. But soon there was a clear cut separation of these commercial banks, from the investment banks. The reason for this was the great economic depression, which pushed the government of America into the chasm of economic instability. The event of separation of commercial banks from the investment banks, is popularly known as the Glass-Steagall Act of 1933. 

Later on firms like Morgan Stanley, Goldman Sachs, Lehman Brothers and First Boston, went on to assume the prominent role in the underwriting business in America. Thus investment banks have, not only come a long way, but have also positively flourished in a wide variety of economies, from assuming the role of merchant banks in the 18^th Century London and Amsterdam to going on to become the behemoths of today. As long as the concept of market economy is in vogue, investment banking as a career will be in vogue, with a number of finance aspirants vying for a prosperous career. This in turn will keep on boosting the popularity of institutes like Imarticus Learning, which have been successfully imparting industry, endorsed education and skill to all finance aspirants.