Investment bankers were the lords of Wall Street for a long time. However, things started to change after the 2007 financial crisis. Lehman Brothers filed for bankruptcy and led to greater scrutiny of the operations of other Wall Street bankers.
It was during at same time when Morgan Stanley and Goldman Sachs decided to become bank holding companies so that they can gain access to the Federal Reserve’s discount window. By transforming into bank holding companies, the two firms are able to tap into deposits from their retail customers.
Difference between Investment Bank and Bank Holding Company
An investment banks help governments and companies raise funds by issuing and selling securities. They also provide advice on other financial transactions, such as acquisitions and mergers. Although they are regulated by the Securities and Exchange Commission, they operate with less supervision compared to commercial banks.
A bank holding company is an umbrella corporation that operates commercial banks that include accepting deposits from their customers. They are supervised by the Federal Reserve, as well as the Federal Deposit Insurance Corporation.
After the two firms became bank holding companies, there are no independent investment banks operating in Wall Street. Citigroup remained the largest holding company in the United States, followed by JP Morgan.
What’s Next for Wall Street Banking
Morgan Stanley and Goldman Sachs are still able to engage in their investment banking activities even after they became bank holding companies. However, their operations will be under the supervision of the Fed.
Going to the Cloud
Financial services are now moving to the cloud. Trading firms and asset managers are in the process of moving all their data to the cloud. As the technology advanced, cloud servers have become more safe and secure. Plus, they offer flexibility and agility to their customers.
Cloud computing has become more important in the past couple of years, that there are talks of the death of traditional brokerage firms. It will not be long when companies don’t need Wall Street bankers. Instead, they can do their business in the cloud, just like in the real estate and travel industries.
One of the main roles of an investment bank is to serve as the third party between corporations and investors through initial public offerings. Investment banks offer underwriting services for new stock issues once the company goes public and looks for equity funding.
In the future, FinTech companies are able to offer the same services through cloud computing. Such company can partner with several banks to reduce exposure of a single bank. Everything will be transparent to ensure all transactions comply with existing rules and regulations.
The 2007 financial crisis has exposed the weaknesses of Wall Street banks. It is time to be gone with the old ways of doing things on Wall Street, and adopt new methods and technologies to make things more secure, safe and convenient for all stakeholders. And the key to all this is cloud computing.