The End of Investment Bank Capitalism? Financial Jobs and Power in the Securities Industry

Abstract

Media often portray investment bankers as the culprits of the global financial crisis, while mainstream scholarly accounts blame government failures and global trade and financial imbalances. This paper investigates the role of investment banks in the global financial crisis and the US economy, by focusing on employment patterns and power relations in the financial sector between 1978 and 2008. It demonstrates that investment banking plays a central part in the securities industry, which has been by far the most expansive segment of the US financial sector, and a significant contributor to growing income inequality. The power of investment banking has risen over the last 30 years in the conditions of growing demand for investment services, technological changes, deregulation and globalization. Investment banks were at the heart of the shadow banking system, inventing many of the products used by it and often disguising its operation. With leading US investment banks converted into bank holding companies, and the threat of re-regulation, the future of investment banking is uncertain. One area of uncertainty is their relationship with Sovereign Wealth Funds, which involves both opportunities and challenges. The paper finishes with a call for more research on investment banking as an industry, which is a key to understanding the dynamics of contemporary world economy, including insights into the trajectory of commodity and carbon markets, as well as the shifting landscape of financial centres.