History of Investment Banking in the US and Britain – An Overview

The history of investment banking goes back to ancient civilizations such as Rome and Greece. Even thousands of years ago, human civilization was involved in involved with investing and banking operations, with practices such as giving long-term credits to certain industries. The Middle Ages also saw a fair share of investment banking. It is a well known fact that the Knights of Templar were involved in some type of banking on returning to France from the Crusades.

The history of investment banking in England has a significant start in the 1500 or 1600’s. Some of the early, important financial institutions included merchant banks and acceptance houses. In the 1600’s, the opportunities spread to foreign countries as trades. The acceptance houses and merchant banks both accumulated funds for long-term foreign investments.
Another important moment in the evolution of investment banking was the establishment of private banks, many of which started out as family enterprises. One well-known private bank in the history of investment banking was the House of Rothschild, which attained a superior position in European financial centers during the 1800’s and 1900’s.

History of American banking

Prior to the Civil War and WW I, some of the largest industries in the US depended on imported capital, especially from Britain. In the 1840’s, defaults in some state securities cut off the supply of international capital and led to increased efforts to tap the national market, which up to that point had been confined to wealthy ship owners and traders in Philadelphia and NYC. Two industries that really needed financing were the canal and railroad industries.

The Civil War was a crucial time in American history in many ways, including the role it played in the history of investment banking. It was during this time that banking houses were syndicated, which resulted in a billion dollars’ worth of government bonds that went to a large number of investors through thousands of salesmen. This marked the very first mass securities selling operation in US history.

After the Civil War up to now

Investors concentrated on selling railroad bonds in the latter part of the nineteenth century. Some large firms, such as Kuhn Loeb and JP Morgan played a major role in the history of investment banking by merging. At the start of the twentieth century, some steel corporations and railroad industries began to merge also.

During WW I and the period following, the investment banking business in the United States expanded spectacularly. This was mainly due to the unprecedented number of individual stock and security holders. This resulted from the great prosperity period in the early 1920’s. Obviously, new and inexperienced banks and firms entered the field, competed for business, and crashed during the Great Depression.

Obviously, the history of investment banking went through periods of up’s and down’s since the Great Depression. For the most part, the economies in the US and Great Britain have been overall prosperous. There was the threat of a recession just last year, but there are signs of a recovery now.

There has been much debate as to whether or not the banking industry really should have been bailed out, and if it is all right to regulate banks, but it does appear that many individual investors are now (slowly) getting back on their feet.