The stunning decision to grant the two last surviving investment banks, Morgan Stanley and Goldman Sachs, the authority to become bank holding companies gives the firms desperately needed breathing room to make a go of it alone.
Importantly, the change opens the possibility that the investment banks can acquire a commercial bank rather than be acquired by one, as Merrill Lynch was by Bank of America.
The move makes it easier for them to increase their bank deposits, which gives them access to cash, by allowing them to buy up smaller banks. As pure-play broker dealers, the two firms had been prohibited from such deal making. Morgan Stanley already has its own branches that essentially act as banks for its clients. And while Goldman doesn’t have branches, it does have billions in deposits from its wealthy clients.
Both could start making deals to boost these areas by changing the nature of their businesses to focus on banking activities rather than investment ones.
“This,” said a Goldman spokesman, “removes the last vestige of any concerns anyone has had about our safety and soundness.”
Nonetheless, the move was made amid speculation that Goldman Sachs and Morgan Stanley were next in line to collapse.