On Tuesday, the Fed approved American Express’s (AXP) application to become a bank holding company. The move comes on the heels of approvals of similar applications by Goldman Sachs (GS), Morgan Stanley (MS), and other institutions that not so long ago would have been aghast at the thought of being involved in a business as pedestrian as commercial banking. Now, though, these former non-banks can’t seem to apply for BHC status fast enough. And the Fed seems to OK each application the moment it arrived in its in-box. No examination. No prior supervision. No burdensome social mandates.
Next in line: General Motors (GM) —and who knows who else?
Ah, the zeal of new converts! For years we’ve told anyone who’d listen that access to core deposits is the core competitive advantage a financial institution can have. And for years, we were mostly ignored. Why spend a lot of time and effort attracting deposits, sophisticated financial minds argued, when unlimited, low-cost wholesale funding is available? It’s cheap. Never mind that such funding has a very short life. And never mind, either, that it can disappear at a moment’s notice—just when you need it the most.
Suddenly, everyone gets it. The entire financial services industry now vividly understands the downside of relying too much on wholesale funding, and sees the value of long-term deposits. And every institution wants a bank charter so it can go out and chase them. And the federal government hands them out as if they’re internet domain names.
This is becoming ridiculous. When is enough enough?