In April 1998, I was a Skadden associate in the lobby of the Waldorf-Astoria when the merger of Citibank and Traveler's was announced.  Someone next to me said "Glass-Steagall is dead."  Well, a lot of things have changed since then, but (the now) Citigroup and other large banks may have to return to earlier business practices given President Obama's announcement today.  Obama proposes that commercial banks that take customer deposits cannot trade for their own propietary accounts. 

This proposal would move back to an environment where the divide between commercial banks, investment banks and insurance companies were distinct.  Commercial banks also could not own hedge funds or private equity funds.  I can't say it's a horrible idea, but it may in fact have some negatives.

For Goldman Sachs, drastic changes would have to be made.  Following the financial crisis in the Fall of 2007, Goldman Sachs and Morgan Stanley volunatrily became commerical banks (financial holding companies), subject to much more regulation than investment banks to increase investor confidence, bolster their stock prices and give them access to Federal Reserve funds.  But Goldman's record $45 billion in profits last year represent $4.5 billion from propietary trading.  In addition, Goldman has a hedge fund arm and private equity arm.  So Goldman has been a partnership, a publicly-held corporation, a commercial bank, and now what?

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