Matt Levine, Bloomberg, Consumer Banking and Orange Juice, here. Find these guys. Maybe it is Strats through Adam Korn for Goldman? MS no idea at this point.
For all the talk about bringing back the Glass-Steagall Act that used to separate investment banking from consumer and commercial banking, one of the big stories in modern U.S. financial regulation is the push for big investment banks to build up their consumer-banking business. That’s what Goldman Sachs and Morgan Stanley are doing:
Both firms have turned to more basic banking businesses, betting that the cachet of their brand names can overcome relative lack of experience in dealing with the deposits and loans of middle-class Americans.
The moves have surprised many and suggest capital-markets businesses have reached a turning point. “I would never have thought years ago that they would ever be doing this,” says Richard Kovacevich, Wells Fargo & Co.’s former chairman and chief executive. But as regulation and muted client activity hammers trading revenue, “you either shrink, or you try to replace” lost profits.
These are commercial decisions, but they are also influenced by regulation. Regulators view retail deposits as a more stable source of funding than wholesale funding. New capital regulation, and the Volcker Rule, have made it less appealing for banks to buy bonds, and more appealing for them to make consumer loans. The general bank-regulatory apparatus has tilted, since the crisis, to favor traditional banking over sales and trading.