The beginnings of another new economy are taking shape as Morgan Stanley and Goldman Sachs prepare to close the curtain on investment banking.
Mitsubishi UFJ Financial Group Inc., Japan’s largest bank, will inject 900 billion yen ($8.4 billion) into Morgan Stanley to help it transition to a bank holding company. Goldman Sach’s strategy is slightly different albeit with the same ultimate objective i.e. to become a commercial bank. According to Bloomberg, Goldman already has in excess of $20 billion in customer deposits in two subsidiaries and is creating a new one, GS Bank USA, that will have more than $150 billion of assets, making it one of the 10 largest banks in the U.S.
Is the SEC out of a job?
The Securities and Exchange Commission will have not much to do henceforth save regulate some of the boutique investment banks that have largely advisory businesses.
“The decision marks the end of Wall Street as we have known it,” said William Isaac, a former chairman of the Federal Deposit Insurance Corp. “It’s too bad.”
Will the transition help or hurt a sustainable economy?
Many champion the transition on the basis that a stronger Main Street holds promise of a more stable, sustainable economy as compared to the risky endeavors of Wall Street. But is this what is needed to doctor an economy on the verge of depression?
The move is also likely to result in lower compensation for the ex-investment banking employees. A decrease in investment banking salaries which have historically enabled further employment in U.S. households are likely to have a negative impact on household employment and economics. It will be interesting to watch how the results of the shakeup unfold as an exercise in sustainable economics.
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