Investment Banking Trends
and Section 20
Wall Street firms are operating in a rapidly changing environment. They are facing increasing competition from home and abroad. Those firms that want to control their own destinies must have leading market positions in all of their businesses, balanced earnings stream, broad-based customer access, and a global presence. This concluding chapter discusses the future trends of the investment banking business and the crumbling Glass-Steagall Act, which separated commercial and investment banking activities. The Federal Reserve Board has raised the amount of ineligible revenue that a Section 20 subsidiary is permitted to earn from securities underwriting and dealing to 25% of its total revenue. Most large commercial banks would now be permitted to operate very large securities subsidiaries, which might eventually threaten top Wall Street firms.
The business of investment banking is undergoing radical reshaping. It is trending toward globalization and one-stop shopping, and consolidation is the wave of the future.
Companies around the world are increasingly tapping international markets to enhance their global presence and raise capital abroad. At the same time, investors are looking across their national borders to take advantage of new opportunities for capital growth and to add an element of diversification by investing in international securities. With the increasing integration of the global capital markets, the business of investment banking is a worldwide activity. To maintain growth and profitability, and because the U.S. market is mature and, to some extent, overbanked, all major investment banks have expanded abroad. Wall Street's international expansion came as U.S.-based corporate clients rapidly increased their global production and sales. Foreign companies likewise raised substantial amounts of capital worldwide using U.S. investment banks to