Wall Street banking giants Goldman Sachs and Morgan Stanley might consider dropping their “bank holding company” status, an analyst said in a research note.(UPDATE: Goldman Sachs has issued a statement saying they have no plans to change their status.)
Earlier: That way, Morgan and Goldman could then avoid the costs associated with the Volcker Rule, according to Susquehanna Financial Group analyst David Hilder, who spoke to Bloomberg.
Goldman and Morgan Stanley don’t provide banking services in the traditional sense that Bank of America, Citi, and JPMorgan, for example, do. The Volcker Rule pushes banks to engage in those traditional activities, like lending to small businesses. If that is not their core business, and they don’t want it to be, it makes little sense for them to remain banks. The cost of complying to the Volcker rule is too great.
The rule in its current form would impose costs on lenders and drive capital to non-bank market makers, causing the two New York-based firms to consider whether to stop being banks, Hilder said in a note yesterday, when four regulatory agencies issued a 298-page draft of the rule for public comment.
Goldman and Morgan Stanley both became bank holding companies following the collapse of Lehman Brothers in 2008. As a result, they both became subject to regulation by the Federal Reserve.
But they also gained an advantage: as bank holding companies, they were made eligible for emergency federal lending, CNBC.com reported.
Now the Vocker Rule, named for former Federal Reserve Chairman Paul Volcker, imposes restrictions on bank’s trading with their own money.
“The regulators have proposed a massive new compliance burden on banks to prove that their market-making activities are just that, and not proprietary trading in disguise,” Hilder wrote in his research note.
“If these regulations are adopted in anything close to their proposed form, there will be large additional costs imposed on banks as market-makers that will not apply to market-makers not owned by banks.”
The rule was recently made available for public comment.