Investment banking did not start with Wall Street's skyscrapers — it grew out of 18th-century European merchant banks. Understanding that history explains how modern banks raise capital, advise on deals and shape markets today.
The Merchant Bank Origins
In the 1700s, London merchant banks such as Barings and Rothschild financed governments and trade, lending their own credit and arranging international payments. These were the first 'investment banks'.
The 19th Century: Financing Nations and Railways
As industrialisation spread, banks raised capital for railways, canals and rising companies. J.P. Morgan's firm became famous for restructuring and consolidating entire US industries in the late 1800s and early 1900s.
The Glass-Steagall Era
The 1933 Glass-Steagall Act separated commercial from investment banking in the US after the 1929 crash. It defined modern investment banking: securities underwriting, M&A advisory and trading — separate from deposit taking.
From Boutiques to Bulge Brackets
The repeal of Glass-Steagall in 1999 allowed universal banks (e.g. J.P. Morgan Chase) to reunite lending and advisory. Today investment banking spans bulge brackets, boutiques and banks across the world.
FAQ
Who started the first investment bank?
The Rothschilds and Barings in 18th-century Europe are widely credited as the first merchant/investment banks.
Why does investment banking history matter today?
It explains modern regulation, the structure of the industry and why capital raising and advice remain its core.
Related: What Does Investment Banking Do? and Where Is J.P. Morgan?.