Goldman Sachs Is Down with the BHC Status
Pic credit: Those darn LOLFed kids
Goldman likes it on the holding company side. It's like having all the benefits of BHC status without any of the rules. Lending? Pffft! Screw that!
Goldman Sachs (GS) received Federal Reserve approval last week to become a financial holding company, the company said Thursday.
The status allows Goldman to continue to be under the direct supervision of the Fed, but can continue to participate in activities that a regular bank normally wouldn’t, including private equity among other businesses. The status was posted on the Fed’s list of Financial Holding Companies and announced to Goldman employees via an e-mail from Goldman’s Chief Financial Officer David Viniar.
Goldman spokesman Lucas Van Praag said that Goldman’s switch was widely understood by the market after the firm applied for bank holding status last year at the height of the financial crisis. Goldman has received a temporary waver to continue in these activities when it originally applied,
“It’s not a material change to our business,” Van Praag said.
Morgan Stanley (MS) also became a financial holding company after applying for bank-holding status at the same time as Goldman, but Morgan was approved sooner. Other firms that are FHCs are JPMorgan Chase & Co. (JPM), Citigroup (C) among dozens of others.
FHC status was created in 1999 by the Gramm-Leach-Bliley Act, which is the law primarily known for repealing Glass-Steagall Act of 1933, which separated deposit-holding commercial banks from investment banks.
After repaying its loans from the Troubled Asset Relief Program and the Treasury Department warrants, there was talk that Goldman might shed its holding company status to return an investment bank model. Instead, it looks like Goldman can continue to do the activities it has been doing, but still under the supervision of the Fed.