While investment banks play a key role in financing companies, supporting governments, and driving economic development, they have also been at the center of many controversies. From the 2008 financial crisis to concerns about market manipulation, conflicts of interest, and widening inequality, the industry has struggled with a reputation problem.
A 2021 Edelman Trust Barometer survey showed that only 54% of the public trusts the financial services industry, one of the lowest trust ratings among major industries. This skepticism reflects concerns that, while investment banks drive growth, they sometimes do so at the expense of fairness, transparency, or stability.
Let’s explore the most common criticisms—and what investment banks are doing to address them.
Conflict of Interest
One of the most frequent criticisms of investment banks is that they sometimes put their own interests ahead of their clients'. A clear example came during the 2008 financial crisis when Goldman Sachs sold mortgage-backed securities to clients while betting against those same products, profiting when they collapsed. This raised serious questions about whether banks can truly serve their clients’ best interests when they have money riding on the opposite outcome.
Similar concerns arise when banks underwrite securities for companies while also producing research on those same companies. This dual role can pressure analysts to issue favorable reports that help the bank win deals, rather than give objective insights to investors.
In response, regulators have forced banks to build internal "walls" that separate their research teams from their deal-making teams. This is known as the Global Research Settlement in the United States, introduced after the dot-com bubble. Some banks have gone further, increasing compliance oversight and adjusting pay structures to reward long-term client relationships, not just short-term deal wins.
However, critics argue that conflicts are still built into the business model. Investment banks continue to manage this risk by improving transparency, strengthening internal compliance, and clearly disclosing potential conflicts to clients before engagement.
Excessive Risk-Taking
The collapse of Lehman Brothers in 2008 highlighted how risky behavior inside investment banks can threaten the entire financial system. In the years leading up to the crisis, banks took on record levels of debt to maximize profits. They heavily invested in complex mortgage products, many of which were poorly understood or outright misrepresented. When the housing market collapsed, banks suffered massive losses, triggering a global economic downturn.
In the aftermath, regulations like the Dodd-Frank Act in the U.S. and Basel III standards globally were introduced to reduce systemic risk. These measures increased capital requirements, forced banks to hold more cash reserves, and limited risky proprietary trading activities through rules like the Volcker Rule.
Banks have also made changes internally. Today, risk management is much more central to how banks operate. Dedicated risk teams monitor exposures in real time, using advanced models and stress tests. Banks are required to regularly report their risk profiles to regulators and shareholders.
Despite these improvements, some critics argue that financial innovation continues to outpace regulation. This means banks and regulators must remain vigilant to prevent future crises fueled by unchecked risk-taking.
Lack of Transparency
Investment banking has long faced criticism for making its products and pricing hard to understand. Many investors were caught off guard in 2008 when supposedly safe mortgage-backed securities turned out to be highly risky. These products were so complex that even the banks themselves sometimes struggled to fully understand their risks.
Since then, regulators worldwide have pushed for more disclosure. In Europe, MiFID II rules now require banks to clearly show the costs of investment services and research. In the U.S., the SEC has increased its focus on disclosure in capital markets transactions.
Banks have also taken steps to simplify communication with clients. Many now provide clearer fee breakdowns in advisory and underwriting agreements. Some have separated their research costs from execution fees to comply with unbundling rules.
However, transparency challenges remain, especially in complex deals or in private markets where disclosure requirements are lighter. This is why clients are increasingly demanding clearer reporting, plain-language terms, and more upfront discussions about risks and costs.
Market Power and Inequality
Large investment banks are sometimes blamed for widening the gap between the financial elite and the general public. Their services are typically reserved for large corporations, governments, and wealthy investors—not everyday people. This concentration of financial power can fuel perceptions that the industry serves only the richest clients, leaving others behind.
Executive compensation has also drawn criticism. Senior bankers at major firms can earn millions in bonuses, even in years when their activities have broader social costs. This reinforces the public image of banking as a winner-takes-all industry.
In response, some banks have launched inclusive finance initiatives aimed at expanding access to capital for underrepresented entrepreneurs, small businesses, and emerging markets. Examples include Goldman Sachs’ 10,000 Small Businesses program, which provides funding and training to small business owners.
Additionally, many banks have increased their focus on sustainable finance, investing in projects that address climate change, social inequality, and infrastructure development. While these efforts show promise, critics argue that the industry still prioritizes profits over long-term social impact.
Culture and Ethics
Investment banking is known for its intense work culture, with reports of 80- to 100-hour workweeks being common, especially for junior staff. In 2021, a group of junior bankers at Goldman Sachs publicly shared their struggles with burnout, mental health issues, and lack of work-life balance. These stories raised questions about the human cost of the industry’s high-pressure environment.
In addition to workplace stress, the industry has faced scandals involving unethical practices like insider trading, market manipulation, and misleading clients. The LIBOR manipulation scandal, in which several banks were fined billions for rigging global interest rates, is a high-profile example of ethical failure.
To address these issues, banks have introduced wellness programs, capped working hours for junior employees, and increased mental health support. Some have restructured their performance reviews to reward collaboration and ethical behavior, not just revenue.
Regulatory bodies have also increased penalties for unethical practices. Banks now face stricter scrutiny from regulators worldwide, forcing them to invest more in compliance, employee training, and internal monitoring.
Balancing Their Impact
Investment banks sit at the center of the global financial system. They help businesses grow, governments fund public services, and investors build wealth. But they also face serious challenges—conflicts of interest, risk management failures, lack of transparency, and cultural issues that have damaged public trust.
The industry has taken steps to address these problems. Regulatory reforms have improved oversight. Banks have enhanced their risk management, improved disclosure practices, and launched programs to support more inclusive and sustainable finance. Many are also working to improve workplace conditions and strengthen ethical standards.
Yet the work is far from over. Investment banks remain powerful players whose actions affect economies and societies worldwide. Balancing their role as profit-driven institutions with their responsibility to the public will require ongoing scrutiny, better regulation, and a cultural shift toward long-term value creation—not just for clients and shareholders, but for society as a whole.