In September 2008, days after the dawn of the global financial crisis, the firm transitions to a bank holding company, regulated primarily by the Federal Reserve, strengthening its capital, liquidity and competitive position.
On September 21, 2008, Goldman Sachs announced it would become the fourth largest bank holding company in the United States, regulated by the Federal Reserve (the Fed). The move was in response to the dramatically changing landscape in markets and the investment banking industry brought about by the collapse of Lehman Brothers merely six days before and the ensuing global financial crisis.
“We believe that Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources,” stated Chairman and CEO Lloyd Blankfein. He noted that the move addressed market perceptions that placed a premium on the value of oversight by the Federal Reserve Board and the ability to source Federal Deposit Insurance Corporation (FDIC)-insured bank deposit to increase funding capacity, while also providing access to a broader set of liquidity and financing alternatives.
The firm already had two active deposit-taking institutions — Goldman Sachs Bank USA, an industrial loan company established in Utah in 2004, and Goldman Sachs Bank Europe plc, incorporated in Ireland in 2007 — which, together, held more than US$20 billion in customer deposits. By merging a number of existing strategic businesses into GS Bank USA, it quickly became one of the ten largest banks in the United States with over US$150 billion in assets at the end of 2008. GS Bank USA established a branch in London in March 2013 to service its non-US clients, and in April 2016, it acquired GE Capital Bank’s US deposit platform, which would be relaunched as Marcus by Goldman Sachs, aiding the firm’s participation in the consumer finance sector.
As a bank holding company, Goldman Sachs would have access to the Federal Reserve’s discount window, the Fed’s backup source of funding for depository institutions. Bank holding company status would also bring with it accounting rule changes as well as direct regulation by the Fed. The Federal Reserve’s approval was issued in a Sunday night meeting, pending a statutory five-day antitrust waiting period. Morgan Stanley also announced that it would become a bank holding company the same day.
Just as it had done with its transition from a private partnership to a publicly-held company, the firm once again demonstrated its ability to alter its own structure to meet shifting market conditions. By becoming a bank holding company, now regulated primarily by the Federal Reserve and subject to new capital and leverage tests, the firm had further strengthened its capital, liquidity and competitive position.
