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Why Is Goldman a Bank Holding Company?

• Seeking Alpha

Goldman becomes a bank

The reason Goldman became a bank to begin with is because it was on the verge of collapse after the Lehman Brothers (LEHMQ.PK) failure. Andrew Ross Sorkin has a good write up on this in Vanity Fair:


Due to disastrous bets on Lehman paper, the giant Reserve Primary Fund had broken the buck a day earlier, causing an investor run on the money-market funds. Between that, Geithner thought, and billions of dollars of investors’ money locked up inside the now bankrupt Lehman Brothers, that meant only one thing: the two remaining broker-dealers—Morgan Stanley (MS) and Goldman Sachs—could actually be next.


Just in case it’s not obvious, Goldman Sachs was a major beneficiary of the government’s bailout of the financial services industry, not only through the bailout of AIG (AIG) but also through its ability to fall under the regulatory umbrella as a bank holding company (technically Goldman became a financial holding company but the distinction is relatively minor. see definition here) – something which made it eligible for debt guarantees and other government backstops.

Late last year, every financial services company on earth wanted to become a bank and line up for the handouts coming from Washington  American Express (AXP) (a credit card company), GE Capital (basically a hedge fund), GMAC (a car financing company), Genworth Financial (GNW) (an insurance company), Aegon (AEG) (a Dutch company), even Willem Buiter, a former central banker, wanted to become a bank.

This is why Goldman became a bank too. Now, Goldman was in a more precarious position than bank holding companies because of the vulnerabilities of being a broker-dealer. Nouriel Roubini warned 

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