Today's Wall Street Journal:
SEPTEMBER 22, 2008
Goldman, Morgan Scrap Wall Street Model, Become Banks in Bid to Ride Out Crisis
End of Traditional Investment Banking, as Storied Firms Face Closer Supervision and Stringent New Capital Requirements
By JON HILSENRATH, DAMIAN PALETTA and AARON LUCCHETTI
The Federal Reserve, in an attempt to prevent the crisis on Wall Street from infecting its two premier institutions, took the extraordinary measure on Sunday night of agreeing to convert investment banks Morgan Stanley and Goldman Sachs Group Inc. into traditional bank holding companies.
With the move, Wall Street as it has long been known -- a coterie of independent brokerage firms that buy and sell securities, advise clients and are less regulated than old-fashioned banks -- will cease to exist. Wall Street's two most prestigious institutions will come under the close supervision of national bank regulators, subjecting them to new capital requirements, additional oversight, and far less profitability than they have historically enjoyed.
Already, the biggest rivals of Goldman Sachs and Morgan Stanley -- Merrill Lynch & Co., Lehman Brothers and Bear Stearns Cos. -- have merged into larger banks or sought bankruptcy protection....
A little box accompanying the article adds:
Instead of being overseen by just the Securities and Exchange Commission, Goldman Sachs and Morgan Stanley will now face much stricter oversight. The Federal Reserve will regulate the parent companies, the Treasury Department's Office of the Comptroller of the Curency will regulate national bank charters and the Federal Deposit Insurance Corp. will likely play a larger role.
Who, exactly, will be doing the regulating?
What kind of regulations? Who creates the regulations?
Who decides who the regulators are, the people who sit in these offices and enforce the laws? Regulations?
What is the expected duration of these frantic new stabs at "regulation"? Will this "cure" the present situation? Will these actions prevent a recurrence of the presence situation?
Will the culprits who visited this great financial evil upon us be punished? There are probably many more questions to be asked but....
And, what about the "shadow" banking system?
The shadow banking system is unravelling
Nouriel Roubini
Sunday Sep 21 2008 12:00
Last week saw the demise of the shadow banking system that has been created over the past 20 years. Because of a greater regulation of banks, most financial intermediation in the past two decades has grown within this shadow system whose members are broker-dealers, hedge funds, private equity groups, structured investment vehicles and conduits, money market funds and non-bank mortgage lenders.
Like banks, most members of this system borrow very short-term and in liquid ways, are more highly leveraged than banks (the exception being money market funds) and lend and invest into more illiquid and long-term instruments. Like banks, they carry the risk that an otherwise solvent but liquid institution may be subject to a selffulfilling and destructive run on its liquid liabilities.
But unlike banks, which are sheltered from the risk of a run - via deposit insurance and central banks' lender-of-last-resort liquidity - most members of the shadow system did not have access to these firewalls that prevent runs.
http://us.ft.com/...
If this link fails, trying googling Financial Times and plug in shadow banking system on the line.
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