Remember all those stories about how firms like Countrywide and AIG essentially shopped for the easiest regulator the same way a prescription drug addict shops for doctors who will write him a script for Percs?
Remember how all the "former" investment banks like Goldman and Morgan Stanley used their regulator, the SEC, like a poor junior high-school substitute teacher to get away with all kinds of mischief?
Well, it appears when it comes to risk taking in 2009, Goldman Sachs has managed to do both! The boys and girls at Zero Hedge (Richie and I are starting to wonder if they are Goldman arch-enemy Deutsche Bank!) have done another fantastic job bringing to light Goldman's approved request to their NEW regulator as a bank holding company, The Fed, to use their OLD regulator, the SEC when it comes to Value at Risk models and limits! Why Does Goldman Need a Fed Exemption For VaR Calculations?
The clue may come from a February 5 letter by the Federal Reserve to Goldman CAO Sarah Smith. The letter had come in response to GS requests for "temporary exemptions from the application of certain aspects of the Board's Market Risk Rules for state member banks and bank holding companies and the Board's general risk-based capital rules for bank holding companies." Basically through the end of 2009 Goldman is basically using non-traditional. SEC approved VaR models as can be seen here:
GSGI has requested that (1) through December 31, 2009, GSGI and Bank be permitted to use certain Value-at-Risk ("VaR") models approved by the SEC... to determine their capital requirements for specific risk under the Market Risk Rules; (2) through December 31, 2009, GSGI and Bank be permitted to use methods approved by the SEC to determine their capital requirements under the Market Risk Rules for those trading assets, including distressed debt and restricted stock investments that the SEC did not require to be included in the VaR-based models of GSGI and Bank; and (3) GSGI be allowed to use methods approved by the SEC to calculate risk-based capital requirements for its nonfinancial equity investments that are subject to the Board's Credit Risk Capital Rules.
Lets translate this because it's real simple. Goldman wants to be a bank holding company so they will never have to worry about pesky things like liquidity and funding rates ever again. However, they would still like to be regulated by Mrs. Doubtfire....the SEC. Splendid. Like Zero Hedge says, "Mr. Van Praag, the floor is yours....again."