Wall Street CEOs Want the Line Between a Federally-Insured Bank and a Wall Street Trading Casino Erased; Regulators Want Higher Capital to Prevent That

Gunnar Larson g at xny.io
Thu Dec 7 07:24:54 PST 2023

"By Pam Martens and Russ Martens: December 7, 2023 ~

David Solomon, Chairman and CEO, Goldman Sachs

David Solomon, Chairman and CEO of Goldman Sachs, let it slip out at
yesterday’s Senate Banking hearing what is really driving the mega banks’
backlash against federal banking regulators’ proposal to raise capital
requirements at banks with more than $100 billion in total consolidated
assets. (Community banks would not be impacted by the proposed capital

Solomon responded as follows to a question on the proposed new rules,
attempting to justify how the trillions of dollars in derivatives his firm
is holding inside its federally insured and taxpayer-backstopped commercial
bank, Goldman Sachs Bank USA, is helping the country and that raising
capital requirements on those trades would raise costs to consumers:

“You can look at airlines hedging jet fuel; you wanna look at other
derivatives, which obviously gets passed on to consumers; you can look at
gas being hedged in utilities, which obviously gets passed on to consumers;
and then you can look at other transactions. There’s a provision under the
rule called SFT, which allows institutions like ours to borrow securities
from pension plans and give them cash. That increases their returns and
allows them to use their assets to increase their returns. Capital would
increase by eight times for those types of transactions, which would make
them unattractive and would therefore diminish the ability of pensions to
access that tool to increase their returns.”

This one paragraph above goes to the heart of why these mega banks on Wall
Street have launched one of the fiercest lobbying campaigns in their
history – including attack ads on television – to stop these rules from
taking effect. It’s all about derivatives, short sales, and dangerous
trading activities taking place – not in the firm’s broker dealer or
investment bank but in the federally-insured commercial banks they are
allowed to own, which are backstopped by the American taxpayer.

Goldman’s Solomon makes it sound like his firm’s only involvement in
derivatives is to help its business customers hedge legitimate risks, but
Goldman itself is taking huge risks in derivatives for its own trading book
and housing those derivatives in its federally-insured bank. As for Goldman
paying pensions cash to borrow their securities, those securities are
highly likely being used to loan out those securities to Goldman’s hedge
fund clients in order for them to engage in shorting the market.

For the derivatives condition Goldman Sachs was in at the time of the 2008
financial crash, the chart below from the Financial Crisis Inquiry
Commission puts to rest the idea that bank examiners or internal risk
managers are capable of overseeing the safety and soundness of casino banks.

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