Remember when Goldman Sachs changed its legal status to a Bank Holding Company in September 2008?
The investment bank of investment banks was no longer, as it converted its official categorisation to BHC, in order to gain access to the Federal Reserve’s liquidity and funding facilities.
President Obama’s is preparing to ban proprietary tradingat all deposit-taking banks, or most BHCs, a sort of Glass-Steagall sequel, if you will. But while Goldman is (partly) a deposit-taking bank, we’re not sure that necessarily means death to its prop desk, a unit which has reportedly contributed at least 12 per cent to its net revenues in recent times.
Because, a somewhat under-reported event took place in August 2009.
Goldman Sachs became a Financial Holding Company (FHC), in addition to a BHC.
From Fox News:
Goldman Sachs (GS: 164.5354, -3.3446, -1.99%) 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.
FHCstatus itself was created in 1999 by the Gramm-Leach-Bliley Act, which is the law mostly known for repealing the Glass-Steagall Act of 1933. As the Fox story points out, it lets banks do non-normal bank stuff, like have links with PE and hedge funds, while still operating under the supervision of the Fed.
While Obama’s Glass-Steagall sequel, as reported, will certainly affect most financial institutions classified as BHCs, it’s unclear, as yet, whether Goldman will be able to simply shed its BHC status to avoid the new legislation. It’s also unclear whether the proposal will apply to Financial Holding Companies as well as BHCs.
If it doesn’t — then the vampire squid will have managed to escape in a cloud of legal ink.
A full five months before Obama’s announcement.