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Investment Banking

Before diving into history of investment banking lets understand who are investment banker and what is there role in finance world.

Investment banking

 “Investment banking emerged mainly to act as a middleman between the investor and borrower to fulfil their financial obligations”

“IB survived has a bridge between the investor and borrower (govt, private sector. Etc) to meet the demands and it consisted of only security underwriting @ initial days”

Reason for Investment banker to act has middle was mainly due to the borrower didn’t have the clear analysis about the pricing and market to sells its products to investor and wise versa for the investor also they couldn’t able to find the reputed business for investment who can assure returns.

 

Below scenario for better understanding of how investment banking works.

Investment banking firm is negotiating a deal with the borrowers i.e. govt for the products details such as pricing, tenure and volume.

Once the negotiation is successful the investment banking firm meets the investors, finds the Potential interested investor for the particular products and sells the products.

Note - when buying the govt bonds there are 2 main issues,

• Govt may default the debt pay
• Renegotiate the bonds

“So, to overcome the issues the investment banker firm can help to mitigate the risk factor involved, which boosted the reputation of investment banking firms over a year”

History of investment banking

Investment banking has a rich and complex history that spans several centuries. Here are some key milestones.

Early Origins: Investment banking can trace its roots back to medieval times when merchants began trading commodities like spices, silk, and metals. These trade eventually evolved into merchant banks, providing financial services such as underwriting and issuing government bonds.

 

Bank Developments: The 19th century saw the rise of prominent banking families like the Rothschilds, Barings, and Browns. These banks began to take on more modern forms, engaging in activities such as underwriting and selling government bonds.

Expansion in the U.S.: in 90’s centuries Investment banking gained significant development in the United States during the Civil War, as banking houses were syndicated to meet the federal government’s financial needs. This period also saw the establishment of some of the most famous investment banks, such as JP Morgan and Goldman Sachs.

The Glass-Steagall: The market crash of 1929 and decline in market economy were challenging times for investment banks. Many were forced to merge to survive, and the industry faced increased regulation, including the Glass-Steagall Act of 1933, which separated commercial banking from investment banking.

Modern Era: The late 20th and early 21st centuries saw waves of deregulation, followed by new regulations after the financial crisis of 2007-2008. Investment banks today continue to play a crucial role in global finance, offering a wide range of services from underwriting to advisory roles in M&A.