Post-1980 Tendency and the Latest Developments of Organization and Management in Investment Banks around the World
The great changes around the world since the 1980s have driven investment banks (especially American and British banks) to major changes in institutional positioning, business models, and management models. There has been a noticeable trend toward integration, internationalization, and enhancement by knowledge and electronic means. However, the 2007 financial crisis shook the ground of investment banking. It posed a threat to their existence, causing a sudden, major change to management models in investment banks.
Change in Organization and Management in Investment Banks around the World between 1980 and 2007
Integration (Universal Banking) Integration refers to a tendency of investment banks to attempt, by means of organizational restructuring, to integrate commercial banks, insurance companies, trust companies, and other financial institutions into large or super-large financial conglomerates (i.e., the so-called one-stop shop of financial services). Such change responds to an internal need for more funds and a better cushion against risk as well as to the competitive pressure from commercial banks in the context of deregulation.
Internationalization As globalization made its way into the economy and finance over the past 40 years, investment banks around the world began seeking an international presence by going across regions and markets for a broader global business development. Obviously, business expansion requires more from the management model, and investment banks have had to change their organizational framework and management philosophy. International depository receipts, global bonds, and many other new products have been developed while investment banks enter into foreign markets by means of branch offices, joint ventures, or equity participation.
Enhancement by Digital/Electronic Means The era of the digital economy built on the Internet, computers, and information technology has brought a fundamental change to service in the banking industry. It has also posed a new challenge to the management of financial institutions. For investment banks, the high speed of information transmission and the rise of e-trade and other new transaction means in the digital era have changed market competition to some extent. These innovations have also created a chance for readjustment of some investment banking activities (such as securities brokerage). This has forced investment banks to adjust their management models to adapt to the new business environment.
Engineering/Knowledge-Based Enhancement In recent years, competition has further affected conventional investment banking and reduced profit. Investment banks around the world now pay more attention and concentrate more closely on research and innovation. In a sense, investment banking has transformed from conventional to knowledge-enhanced services. A variety of financial engineering technologies has become the primary means of investment banks to expand business and increase profit margins. Objectively, such a new business landscape has set higher requirements of management (e.g., a rising status of the R&D department in an investment bank) and has also become the main driving force for management remodeling.
Organizational and Management Models and Distribution in Today's Investment Banks in This Global Financial Crisis The financial crisis that began in the summer of 2007 has had a huge impact on investment banking, especially on the form and existence of the U.S. independent investment banks. Realistically, the financial crisis continues to exist and financial institutions around the world are still facing much uncertainty as a result of the market turmoil. As far as the investment banking is concerned, organization and management have changed considerably across the industry. Global independent investment banks have gone out with the fall of the five Wall Street titans. All nine investment banks that have a global presence have turned into conglomerates. All large regional investment banks (such as HSBC), except for three Japanese securities firms, have also done the same. For small specialized investment banks and retail brokerage firms, the crisis has had limited impact on their organization and management. Most small specialized investment banks remain as partnerships, while retail brokerage firms remain independent companies in which multiple management models coexist (see Table 3.2).