The Fedannounced on Monday it has approved Goldman Sachs’ (NYSE: GS) bid to buy GE Capital bank in online deposits with roughly $17 billion. After the proposal is consummated, Goldman Sachs Bank would control about $95.1 billion in deposits.However, some commentators opposed the plan indicating that it would exacerbate Goldman’s status, “too-big-to-fail”.
In response, the Fed said that it took into consideration comments from more than 80 individuals and organizations related to the acquisition in both sides of the opinions. In conclusion, the acquisition of a substantial portion of deposits would neither harm the competition in the financial service areas of both banks nor create unacceptable risk in the financial system. “In fact, the deal would enhance financial stability by providing Goldman with a deposit consumer base and a platform for increasing deposit funding,” the U.S. central bank said. In addition, the Fed answered the concern, “too-big-to-fail” by indicating that in deposits would have a negligible effect on Goldman.
“On balance, the proposal would appear to reduce the risks posed by Goldman Sachs, GE Capital, and their subsidiary depository institutions,” the order reads. “In light of all the facts and circumstances, this transaction would not appear to result in meaningfully greater or more concentrated risks to the stability of the U.S. banking or financial system.”
Further conclusion from the deal is that since Goldman shows considerable initiative on Community Reinvestment Act lending and investment, the acquisition may stimulate the bank to expand. The Fed held an optimistic view and said that it expects the bank to expand its lending activities to low- and moderate-income communities.
“This transaction, upon closing, will strengthen the funding diversification and the liquidity profile of GS Bank, and provide a new online channel for gathering deposits,” said Stecher, chief executive officer of GS Bank. “We welcome the opportunity to serve these customers with the highest level of commitment and service.”