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Join Date: Jan 2002
Location: Nor California & Pac NW
Posts: 24,771
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New development that relates to point #1 in the original post.

http://dealbook.blogs.nytimes.com/2008/09/21/goldman-morgan-to-become-bank-holding-companies/?hp

GS and MS will become bank holding companies, thus subject to increased regulation by the Fed and FDIC.

This was presumably done to (1) permit GS and MS to buy retail banks and thus access the relatively stable capital source of deposits, (2) make permanent their access to the Fed's lending window, and (3) increase investor confidence in GS and MS.

The implication is that GS and MS will have permanently lower leverage in the future (investment banks have been as high as 30-to-1, traditional banks are closer to 10-to-1), thus their potential returns on equity will be permanently lower. This seems like quite a price to pay, but apparently GS and MS felt it had to be paid.

By voluntarily putting itself under the regulatory structure for traditional banks, the investment banking industry is in effect moving toward the single regulator model.
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Old 09-21-2008, 07:44 PM
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