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Investment BankingInstitutions, Politics, and Law$
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Alan D. Morrison and William J. Wilhelm, Jr.

Print publication date: 2007

Print ISBN-13: 9780199296576

Published to Oxford Scholarship Online: May 2007

DOI: 10.1093/acprof:oso/9780199296576.001.0001

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The Rise of the Investment Bank

The Rise of the Investment Bank

Chapter:
(p.121) 5 The Rise of the Investment Bank
Source:
Investment Banking
Author(s):

Alan D. Morrison (Contributor Webpage)

William J. Wilhelm Jr.

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780199296576.003.0005

The 19th-century industrialization of America required significant quantities of capital that could not be met by local savings. Commercial law was not well-developed at the start of the century, and hence capital importation had to be supported by private laws. The Atlantic traders mentioned in Chapter 4 had established networks and strong reputations upon which they could lean to support private financial laws, and they were particularly well-placed to intermediate American capital-raising. Their businesses therefore evolved into merchant banks. The chapter describes this process in detail, and discusses early financial contracts and the evolution of commercial and contract law in the early 19th century. The importance of relational contracting to early securities trading and to the loan contracting from which investment banking emerged is discussed. Finally, the chapter shows how the contours of the modern investment banking industry were drawn in the wake of the 1837 panic.

Keywords:   merchant banks, financial contracts, commercial law, contract law, loan contracting, 1837 panic

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