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Welcome to Your New Competition: Goldman Sachs and Morgan Stanley

Monday mornings are becoming increasingly interesting for people in the financial services industry -- you never know what kind of news you're going to wake up to.

Monday mornings are becoming increasingly interesting for people in the financial services industry -- you never know what kind of news you're going to wake up to.The news (actually announced Sunday night, Sept. 21) that Goldman Sachs and Morgan Stanley, the last two independent investment banks, will become bank holding companies, literally signals the end of investment banking as a separate industry. As The New York Times explains it this morning:

"By becoming bank holding companies, the firms are agreeing to significantly tighter regulations and much closer supervision by bank examiners from several government agencies rather than only the Securities and Exchange Commission. Now, the firms will look more like commercial banks, with more disclosure, higher capital reserves and less risk-taking."
It's ironic that while the industry meltdown is being viewed as evidence that the repeal of Gramm Leach Bliley and the high-profile convergence plays of the past 15 years were mistakes, in a way the Goldman and Morgan Stanley moves are the ultimate examples of convergence. One might say, to paraphrase Richard Nixon's statement about economist John Maynard Keynes, "We are all commercial bankers now." Presumably these two institutions are going to need to invest in some core banking technologies, especially in the areas of account management and compliance, that will make them even more like "traditional" banks. Whether or not they will maintain the vaunted advantage in technology vision and proficiency over their commercial banking peers remains to be seen. It's unlikely that the banking industry will protest these moves at this time -- although in a way it's not that different from the possibility of Walmart getting a banking charter. One way or another, though, it might be worth invoking Keynes again, in terms of his observation: "In the long run, we're all dead."

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio

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