Perhaps you thought you'd never be able to open a savings account at Goldman Sachs Group Inc. (GS), but life is full of surprises. On April 18 the company announced that it had completed its acquisition of GE Capital Bank's online deposit platform and taken on $16 billion in deposits. Retail customers can now open a savings account at GS Bank, an online-only platform, with a deposit of as little as $1.
On a phone call with Investopedia Monday, Goldman Sachs' Vice President of Media Relations Andrew Williams said that offering a consumer banking platform allowed the bank to diversify its sources of funding, a concern he said stemmed from the 2007 financial crisis. Global Head of Corporate Communications Jake Siewert wrote in an email to Investopedia, "Regulators have been encouraging banks to fund with deposits rather than wholesale funding, and the acquisition of GE’s on-line deposit platform allows us to do that."
Deposits are seen as a more secure source of funding because each account is insured up to $250,000 by the Federal Deposit Insurance Corporation (FDIC). Wholesale funding refers to a number of sources of financing, including "brokered deposits," through which wealthy savers break up their cash holdings and deposit them in several different banks though brokers. This method allows clients to keep larger proportions of their savings under the FDIC insurance limit. (See also, When Wholesale Funding Goes Bad.)
GS Bank is trying to bring in more mass-market deposits by offering attractive interest rates. An online savings account offers a 1.05% annual percentage yield, compared to an average U.S. rate of 0.06%. On the other hand, Ally Financial Inc. (ALLY) and Synchrony Financial (SYF) both offer similar rates, demonstrating the competition among online-only banks, which save by dispensing with brick-and-mortar locations. GS Bank also offers certificates of deposit, including a five-year CD yielding 2.00% annually.
Housing commercial and retail banking operations under one roof has become a contentious issue in this election cycle, with Bernie Sanders supporting the reinstatement of legislation that prevented the two businesses from being combined. The Glass-Steagall Act, as the legislation is known, was passed during the Depression in 1933 and repealed during Bill Clinton's administration in 1999.
Asked if the push to separate commercial and retail banking affected Goldman Sachs' decision-making, Siewert wrote to Investopedia, "the political climate around Glass-Steagall had nothing to do with this acquisition." Williams declined to comment.
GE Checks Another Box
The acquisition of GE Capital Bank's online platform has been pending since August 2015. General Electric Co. (GE), a diversified manufacturer that built its financing arm into a multi-billion dollar banking operation, announced in April that it would hive off its financial assets to focus on its core business. GE is hoping to shed the "systematically important financial insitution" (SIFI) label it acquired as a result of the 2010 Dodd-Frank Act, which adds regulatory burdens based on the logic that the company is "too big to fail."