Goldman Sachs and JPMorgan to Become Commercial Bank Holding Companies
It is true when they say this changes the face of Wall Street. In the NY Times article they mentioned the leverage both banks carry is twice what the major commercial banks are, it will be interesting to see what they do to bring this down and what regulation is in place for this and how it will affect their compliance or if the New York regulators even care? What I do love is the mention that with access to the Fed’s discount window, they will now have “permanent liquidity”. I guess it really does not matter if you make bad decisions in the U.S. financial sector, you are now basically rewarded by getting whatever capital is needed to stay afloat.
Goldman Sachs and Morgan Stanley, the last two independent investment banks, will become bank holding companies, the Federal Reserve said Sunday night, a move that will fundamentally alter the landscape of Wall Street.
The move alters one of the models of modern Wall Street, the independent investment bank, soon after the federal government unveiled the biggest market intervention since the New Deal. It heralds new regulations and supervision of previously lightly regulated investment banks, as well as an end to the outsize paychecks that helped shape the image of the chest-thumping Wall Street banker.
It is also the latest signal by the Federal Reserve that it will not let Goldman or Morgan fail. The move comes after the bankruptcy of Lehman Brothers and the near collapses of Bear Stearns and Merrill Lynch.
Now, Goldman and Morgan Stanley, which have been the subjects of merger speculation in recent weeks, can become direct competitors to larger firms like Citigroup, JPMorgan Chase and Bank of America. Those firms combine investment-banking operations with the larger capital cushions that come with retail deposits, giving them a stability that pure investment banks lack.
JPMorgan acquired Bear Stearns this spring in a fire sale brokered by the federal government, while Bank of America has agreed to buy Merrill Lynch for $50 billion. Barclays of Britain agreed to buy the core capital-markets business of Lehman Brothers out of bankruptcy late last week.