Investment Banking

The Great Recession (December 2007 to June 2009) and the ensuing financial reforms (with the Dodd-Frank Act of 2010 being the centerpiece) have had a major effect on the investment banking industry. Some trends worth watching include declining staff levels in client-facing positions, decreasing employment opportunities in sales and trading (but growth in AI–related occupations), declining revenue from IPOs and other challenges to traditional revenue streams, advances in technology, and the rise of specialist firms.

The Changing World of IPOs

Investment banks used to make about 25 percent of their income from underwriting IPOs. But this has changed in recent years due to several developments. Currently, investment banks earn only 15 percent of their revenue from IPOs, according to Seeking Alpha, a crowd-sourced content service for financial markets. CB Insights reports that investment banks generated $7.3 billion in revenue in 2017 (the latest year for which data is available) from underwriting IPOs—a 43 percent reduction since 2000 when adjusted for inflation. Much of this reduction in revenue can be tied to the growing power of tech companies, which are:

• using their power and influence to negotiate lower fees with investment banks; banks typically charge an underwriting fee of 3 to 7 percent of the gross proceeds of the IPO
• using other types of initial stock offerings (such as direct public offerings and alternative changes) that do not involve investment banks
• choosing not to go public at all, which is forcing banks to pursue more deals and lower their fees in order to compete

“As revenue generated from underwriting IPOs has gone down, investment banks have turned to technology to lower costs and automate parts of the process,” according to CB Insights. “This is helping banks maintain high profit margins—for now. But it also signals the susceptibility of the investment banks to commodification down the road by technology disruptors.”

The Disruption of Mergers and Acquisitions

Assisting companies with mergers and acquisitions (M&A) has been another traditionally robust revenue stream for investment banks, but the number of M&As (especially high-profile ones) has declined significantly in recent years. This changed in 2025. “After an extended downcycle, deal value surged 40 percent in 2025, with a shift toward larger deal sizes,” according to “Looking Back at M&A in 2025: Behind the Great Rebound,” a report from Bain & Company. “The broad-based rebound was led by advanced manufacturing and services and technology.”

Advances in technology are allowing some companies to forego using the services of investment banks during the M&A process. Technology such as private, online networks and software as a service tools (such as Axial, a platform on the internet for buying, selling, advising, and financing private companies) are helping middle-market company executives handle many M&A tasks without hiring investment banks. “Even some big companies are opting to go it alone when it comes to mergers and acquisitions,” according to CB Insights. “Apple’s acquisition of Beats, Comcast’s acquisition of DreamWorks, Facebook’s acquisition of WhatsApp, and Oracle’s acquisition of Micros Systems were all done without an investment bank’s involvement—and those four deals were altogether worth more than $31 billion.”

Large investment banks also face competition for M&A work from specialized boutique investment banks such as Qatalyst Partners and Centerview Partners. “Smaller banks that don’t trade may be seen to have fewer potential conflicts of interest when it comes to their advisory work,” according to CB Insights.

Wall Street Staffing Continues to Decline, But New Career Paths Have Emerged

The number of investment bankers, sales workers, research analysts (especially entry-level positions), and traders has declined in the last decade due to efforts to cut costs, the implementation of AI technology, and other factors. Some employment areas remain strong due to growing concerns about information technology security; the increasing use of cloud computing, advanced artificial intelligence, and data analytics; and increasing government regulation (in some countries). In addition, “even as AI automates certain jobs out of existence, it is creating new types of work and prompting big reskilling efforts in financial services,” according to “Impact of AI on the Workforces in Financial Services in the Last 18 Months,” an article that was published on LinkedIn in 2025. “Companies are not simply firing staff; many are retraining their workforce for the AI era or hiring fresh talent with AI skills.” Aspiring investment banking professionals should be sure to augment their financial education with coursework, certificates, minors, and even degrees in AI to ensure that they remain attractive candidates for employment.

The Rewards and Challenges of Technology

Technology is changing the way the investment banking industry does business. Many large I-banks have migrated their operations from custom-built information technology systems to cloud-based systems to save money and improve efficiency. They are also integrating a variety of other technology solutions. But the current economic climate has prompted some companies to scale back long-term technology projects to focus on short-term goals and fixes. The accounting firm Deloitte believes that this approach is a mistake for some companies, which may fall behind in the ability to compete with other banks. “Going forward, continuing to invest in technology, especially through cloud-based solutions, could be a key differentiator,” according to Deloitte’s 2023 Banking and Capital Markets Outlook. “But such transformation will not go far if banks do not set up a more robust data architecture. This will likely be needed to deploy advanced applications such as machine learning and natural language processing.” Although customers love the increased flexibility that technology provides, many investment banks are still struggling to catch up with customer demand for user-friendly technology, as well as address data security and privacy issues. Accenture reports that “some investment banks are piloting voice biometrics for added security and a better customer experience during telephone transactions. Others are exploring new authentication methods, such as social log-ins and risk- or content-based identification.” These technologies are still in the early stages, but Accenture believes firms that provide these services may have a competitive advantage over banks that do not provide these types of services to their clients. These developments are fueling demand for programmers, information security professionals, risk managers, compliance professionals, and other information technology workers.

Another emerging technology is distributed ledger technology (DLT), which is a decentralized database that is used and managed by various participants. Transactions are synchronized and shared so that all users can view the most recent information on the database. “As a distributed log of records, there is greater transparency—making fraud and manipulation more difficult—and it is more complicated to hack the system,” according to BBVA, a multinational Spanish banking group. Banks and other financial companies are using DLT to improve data security, risk management practices, and fraud detection; create more-trusted recordkeeping for use with customers and for regulatory compliance; share data more easily between various entities (this is especially useful as financial transactions become more complex); and reduce costs. “Distributed ledger technology could fundamentally change the financial sector, making it more efficient, resilient and reliable,” according to the World Bank. The phrase DLT is sometimes used interchangeably with the phrase blockchain technology. Blockchain technology maintains a continuously-growing list of records that cannot be altered, except after agreement by all parties in the chain. Each entry is time-stamped and linked to the previous entry. Each digital transaction or record is called a block in the chain of records, hence the blockchain moniker. Blockchain can either be an open system, where anyone can add information, or a controlled one, where only users with permission can access the system. “A DLT can be considered a first step towards a blockchain, but importantly it won’t necessarily construct a chain of blocks,” according to TheNextWeb.com. “Rather, the ledger in question will be stored across many servers, which then communicate to ensure the most accurate and up to date record of transactions is maintained… That said, DLT is technologically decentralized and relies on similar principles of consensus to blockchain.”

Artificial intelligence (and especially generative AI) is increasingly being used in the banking industry. Artificial intelligence can be defined as technology that can be programmed to make decisions that normally require human thought—is increasingly being used in the banking industry. Generative AI is a form of machine learning algorithms that can be used to create new content (including text, simulations, videos, images, audio, and computer code), as well as analyze and organize vast amounts of data and other information and perform other tasks more efficiently than humans can. Artificial intelligence is being utilized in the front office (marketing, sales, decision support, research, authentication and biometrics, pricing engines, trading), the middle office (anti-fraud and risk, anti-money laundering, complex compliance workflows), and the back office (credit underwriting, smart contracts). ThoughtLinks, a strategic advisory firm projects “that by 2030 approximately 40 percent of banking technology, operations, and knowledge work will be fundamentally redefined by AI, based on proprietary analysis of nearly 5,000 banking processes.”

Although investment banks are embracing advanced AI, there are serious potential drawbacks to this technology. “The infusion of generative AI into the investment banking value chain will most likely come with potential legal, reputational, and other operational risks,” according to “Unleashing a new era of productivity in investment banking through the power of generative AI,” an article from Deloitte. “It may also alter the dynamics with buy-side clients; as they also embrace this technology, the outputs they are able to generate with greater efficiencies may reduce dependency on the sell-side.”

A noteworthy change brought about by technology (including AI) is the growing popularity of high-frequency trading (i.e., trading with complex computer algorithms). Algorithmic trading tied to computer programs can trigger tens of thousands of automated stock trades in less time than it takes to read this sentence. Algorithmic models are used to trade stocks quickly and take advantage of small changes in stock prices to earn healthy returns. High-frequency trading firms accounted for 60 percent of all U.S. equity trading volume in 2017 (the latest year for which data is available), according to CNBC.com. this was an increase of 9 percent from 2012. Computer-driven trading has overtaken the work traditionally done by specialists on the stock exchange trading floors. Floor traders on the New York Stock Exchange (NYSE) currently number less than 500, or about 10 percent of the 5,000 floor traders in the early 2000s, and may be on the way out, replaced by off-exchange high-frequency trading specialists that account for the majority of stock exchange trades. (On the other hand, some see NYSE traders and brokers as a great public relations and marketing tool in an industry that is becoming increasingly automated. They also are an important on-site resource during a crisis. For example, when a software error at trading firm Knight Capital caused it to lose $440 million in 30 minutes in 2012, brokers were on the trading floor to manually close down stock trading.) Computer-driven trading, blamed for the May 2010 “flash crash” has its share of critics but appears destined to stay. (A flash crash occurs when stock prices drop or rise precipitously in a matter of minutes before recovering; regulators believe that automated, high-speed, algorithmic trading exacerbates this phenomenon.) High-frequency trading “is here to stay,” says Lawrence Leibowitz, past chief operating officer of the NYSE Euronext. “The real question is, how do we regulate it and (monitor) it in a way that gives people confidence that it is fair and that they have a chance?”

In regard to trading, investment banks also face competition from automated high-frequency trading firms; specialized, boutique investment banks; and large tech companies.

More Banks Embracing Banking as a Service

Banking as a service (BaaS) is the provision of banking products and services through third-party, non-banking distributors in order to expand one’s customer base, monetize their banking stack (data, capabilities, and infrastructure), reduce costs, grow revenue, and meet other goals. BaaS services are provided via the use of application programming interfaces or a cloud platform. The accounting firm Deloitte says that successful BaaS providers are using one of four configurations:

• Providers provide their banking license, and products, operations and/or technology for use by aggregators, other banks, and non-financial companies.
• Providers-Aggregators act like Providers, but also couple their own capabilities with other vendors to compose a complete “out-of-the- box” solution.
• Distributors leverage end-customer relationships to offer unique financial services propositions.
• Distributor-Aggregators enhance the propositions they distribute by adding new products or technology from multiple providers.

In 2019, BBVA become the first bank in the United States to offer a full suite of BaaS products. According to the bank, its Open Platform “works by allowing third parties, once they pass strict compliance and security checks, to access (through application protocol interfaces) a range of services the bank can offer.” Additionally, industry leader Goldman Sachs has created a BaaS global transaction banking platform that can not only be used by its corporate treasury clients, but also by fintechs and e-commerce marketplaces.

The global BaaS market size was valued at $29.5 billion in 2024, according to ResearchAndMarkets. It is projected to reach $74.8 billion by 2030, growing at a compound annual growth rate of 16.8 percent from 2024 to 2030. The adoption of BaaS offers the potential for increases in revenue and expansion of partnerships, among other rewards, but there are also potential drawbacks. “BaaS, is a great opportunity for existing banks, insurers, and wealth managers to reach a greater number of customers at a lower cost by teaming up with non-financial businesses,” according to Oliver Wyman. “But if they do not react in a rapid, strategic manner, BaaS could also pose a threat, as it opens up the financial services market to new challengers.”

The Rise of Specialist Firms

As investment banks reacted to market shifts, two trends are apparent: Some banks have expanded their activities beyond traditional investment banking, while others have sold off their non-core lines of business that are not specifically related to securities underwriting, advisory services, or trading. Boutiques banks are on the rise, according to Deal Pen, a research and advisory firm. Banks like Evercore and Greenhill are winning mandates, taking market share and luring top talent away from the bulge bracket banks.

Also worth noting, there is more focus on international transactions, notably with Asian companies seeking access to the U.S. markets. Even some regional Midwestern banks are stepping up and getting involved. The major trend is a shifting of market share from the larger wire house banks to smaller niche focused boutique banks.

The Weakening of the European Investment Banking Industry

Many European investment banks are losing business to American firms. In 2007, European investment banks earned 39 percent of IB revenue, according to Deloitte. But that number decreased to 23 percent in 2021. On the other hand, U.S. investment banks' share of worldwide revenue increased from 46 percent to 57 percent during this time span. “What may be more concerning is that they are also losing their dominance on domestic turf, with only a 50 percent share in the European market—their smallest ever,” according to Deloitte’s 2023 Banking and Capital Markets Outlook. “With the Russia-Ukraine war in their backyard, the ongoing energy crisis, and a bleaker economic outlook, European banks may be saddled with more challenges.” European banks will need to find more creative ways to spend their capital, including focusing on green finance and developing joint ventures and partnerships with other European and non-European banks to expand their expertise offerings and global reach.