New and more stringent capital requirements and closer supervision, in exchange for the opportunity of tapping into saving deposits, which require establishing a costly network of branch offices. At first sight, it doesn't look like an attractive business proposition. But the two largest US investment banks have decided to take it. Having survived the financial crisis, Goldman Sachs e Morgan Stanley have asked for and obtained their transformation from investment banks to bank holding companies, which means the two Wall Street institutions have now become commercial banks.

  The truly important point," explains Andrea Resti, Director of CAREFIN, Bocconi's research center for applied research in finance, "is that a supervisory authority that does not feel responsible for a given institution is unlikely to come to its rescue, but if it accepts to become its direct supervisor, then it's morally responsible for its survival."

  In the US market, retail banking is a very crowded sector, therefore it's hard to imagine that Goldman Sachs and Morgan Stanley will open their own networks of branches and tellers. "It is more likely, just as similar operators did before them, that they will rake deposits via the Web or seek high net worth customers through other channels, so that they can raise a lot of capital with a limited number of operations. But the truly crucial aspect is the protective shield offered by the supervision authority for commercial bank holding, the Federal Reserve. Goldman and Morgan must have felt like those kids that, afraid of getting beaten up at school, show up before class with their older brother, in this case the Fed."

  Other than the safety cover offered by the Fed, the possibility of rationalizing the structure of revenues must have also a played a role in the two banks' decision. "Investment banks are extremely procyclical," Resti adds, "The money floods in good times, and then completely dries up in bad times. The acquisition of Merrill Lynch by Bank of America and Barclays' interest in buying up Lehman's remains can be explained according to such logic. The jury is still out about whether the model of the investment bank has been buried for ever by Goldman and Morgan's change of status; it could well be a way to safeguard their bond and equity markets activities and avoid going through the humiliation of acquisition."
In the US, the lesser regulation of investment banks with respect to commercial banks is explained by the fact that the former do not deal with small investors, but with a sophisticated public, constituted by other banks and pension funds, even if the recent crisis shows that risks taken at different points of the financial system have ended up wreaking havoc everywhere. "In Italy the situation is different," Resti concludes, "Since 1993, our model has been that of the universal bank, where financial supervision is equal for all."

An interview with Andrea Resti, Associate Professor of Finance and
Director of CAREFIN Research Center, Bocconi University