In the United States, the two world renowned investment banks, Goldman Sachs and Morgan Stanley, have declared that investment banking no longer holds a bright future for them anymore. The two financial giants have just received the Federal Reserve’s green light to change course – from being an investment bank to a consumer bank that accepts retail deposits. This is a move to enable these financial institutions to build their deposit base instead of going into large debts by borrowing.
It remains to be seen how Goldman Sachs and Morgan Stanley will be able to garner enough market confidence for consumers to start putting their money into these banks. With full knowledge that they didn’t make it as investment banks and the fact that they have written down billions of dollars in losses over the subprime mortgage crisis, it will indeed be difficult for people to part with their cash into these banks. I know I will not bank on a relationship with a bank that obviously has funding issues.
What then is the implication of the investment banking landscape worldwide? What about our very own investment banks in the country? Though our local financial institutions may not have large exposure and therefore negative impact of the market crash, there will certainly be some effects from the downfall of the investment banking industry as a whole.
It will now be an interesting time to watch as the whole financial industry goes through a revolution of change to come.
