The End of Investment Bank Capitalism?

Abstract

Abstract This chapter investigates employment patterns, remuneration, and power relations in the US financial sector between 1978 and 2008; identifying the economic geography of investment banking as one of the keys to understanding the dynamics of the contemporary world economy, and promoting a mesolevel approach to the study of geographies of finance. It demonstrates that investment banking occupies the most lucrative and powerful position in the securities industry, which has been the primary driving force behind the expansion of the US financial sector in payrolls in recent decades, and the phenomenon described as “financialization” more broadly; suggesting that the latter might be most precisely understood in terms of the rise of “investment bank capitalism.” The power of investment banking has risen since the late 1970s under the conditions of the growing demand for investment services, technological change, deregulation, and globalization. Investment banks are at the heart of the shadow banking system, inventing and producing many of its key products, and contributing decisively to the outbreak of the global financial crisis of 2007–2009. With leading US investment banks converted into bank holding companies and increased reregulation, the future of investment banking is uncertain. The growing concentration of power in the securities industry “buy side,” especially in the hands of passive fund managers and sovereign wealth funds, presents a particular potential challenge to investment banks. Broadly speaking, however, investment banks appear to be mostly adapting to these new challenges, and indeed often harnessing them as opportunities.