By Rebecca Vineyard

When we think of investment banking, we typically imagine high stakes dealings on modern-day Wall St. – but in actuality, investment banking has existed in some form for centuries. From medieval financiers to moneymen of the Great Depression and into this age of flickering financial reform, the history of the investment bank and the banking institutions is one filled with curiosity and intrigue.

Before any institutions catering to investment banking were founded, there existed the investment financier. Essentially, an investment financier was an extremely wealthy citizen who would provide capital to their royals and government. In exchange, taxes collected from subjects of the crown would typically act as security for the loan.

Affluent subjects bankrolling kings is in essence a form of investment banking – but modern investment banking began much later. In the United States, it arose during the Civil War era with Philadelphia-based financier Jay Cooke. Cooke (with thousands of salesmen) floated hundreds of millions worth of government bonds to investors. Later, the financier acted as an agent of the Treasury Department to market war bonds to the general public, raising money that was instrumental to the Union’s success.

Once the Civil War was over, investment banking took on a new, vital purpose in the recuperating nation. American banks lacked the capital to finance the expanding railroads, mining projects, and large-scale manufacturing that began to take the growing country by storm. Due to this, investment banks formed as matchmakers: they brought together investors with capital, and the firms that needed that capital.

The private investment banking industry grew, dominated by two groups: German-Jewish houses, and “Yankee” houses. Eventually, though, the Panic of 1907 – a financial crisis which nearly collapsed the New York Stock Exchange – led to reforms, including the creation of the Federal Reserve System in 1913. However, these reforms were not enough to stop further crises. When the Great Depression hit, Roosevelt’s New Deal aimed to make further, necessary reforms to U.S. banking systems. The Glass-Steagall act required that commercial and investment banks be separate, causing many existing banks to split apart. For example, JP Morgan splintered into three entities: JP Morgan, the commercial bank; Morgan Stanley, the investment bank; and Morgan Grenfell, the British merchant bank.

Investment banking generally grew over the decades to meet a growing demand for investment services. However, in 1999, Glass-Steagall was repealed, completely altering the landscape of investment banking: Wall Street investment banks and depository banks were no longer required to be separate. This contributed greatly to the 2008 financial crisis, and subsequently, the world of investment banking as we know it today.