Internet Investment Banking

Journal of Applied Corporate Finance, Spring 1999


by William J. Wilhelm, Jr.,
Boston College*

The banker’s network of personal relationships is perhaps the central element of the production technology of the 20th-century investment bank. In his classic history of Investment Banking in America (1970), Vincent Carosso argued that investor networks began to take shape in the 1870s as the evolution of the corporation increasingly required banks to distribute large blocks of securities.1 More recently, in an article published in this journal, Charles Calomiris and Carlos Ramirez traced bank relationships with client firms to the rise of “financial capitalism” in the late 19th century. A distinguishing feature of this form of capitalism was the presence of powerful financiers on corporate boards, which provided companies with the “certification” necessary to raise capital from outside investors.2 And, in their 1988 book on investment banking, Harvard professors Robert Eccles and Dwight Crane added to this general argument by showing how the banks’ relationships with corporate clients have provided them with a constant flow of information that has shaped the design of products and services.3
Given the relatively primitive state of information technology for much of this century, this relationship-based production technology appears to have been a remarkably effective institutional adaptation to the information-intensive nature of the investment banking industry. When these financial networks were suppressed in the wake of New Deal financial reforms, the activity and amount of capital raised in public securities markets fell dramatically—and, perhaps more surprisingly, took decades to rebound. Indeed, it was not until the 1960s, when investment bank relationships were able to restore their ties to institutional investors, that U.S. public debt and equity markets returned to...