Introduction
The Federal Reserve has launched an inquiry into Goldman Sachs Group Inc.'s ($GS) consumer business to assess whether the bank had suitable safeguards in place while expanding its lending, according to those familiar with the situation. The Federal Reserve has raised alarms about the lack of sufficient monitoring and control within the consumer business, known as Marcus, as it expanded, according to people familiar with the matter.
Background on the Federal Reserve
The Federal Reserve, also known as the Fed, is the central bank of the United States. It is responsible for implementing monetary policy, supervising and regulating banks, and preserving the stability of the financial system. Monetary policy is decided through the tools of interest rates and open market operations, with the ultimate goal of attaining price stability and full employment. Additionally, the Fed acts as a "lender of last resort" to banks during times of financial crisis.
With banking oversight and enforcement, the Federal Reserve is responsible for guaranteeing that banks and other financial organizations run securely and suitably, and obey laws and mandates created to secure customers. The Federal Reserve is also responsible for safeguarding the consistency of the monetary system. This contains tracking for potential perils to the system and taking action to reduce those dangers when necessary.
Background on Goldman Sachs
Goldman Sachs has been a leader in the financial sector since its establishment in 1869 by Marcus Goldman, a German immigrant to the US, and Samuel Sachs, his son-in-law. The firm was originally dedicated to underwriting bonds and assisting companies in raising capital, yet it rapidly became one of the top investment banks in the country.
In subsequent decades, Goldman Sachs kept growing, expanding overseas, opening offices in significant financial centers, and either taking over or joining with other financial firms. Now, Goldman Sachs is one of the largest and most influential investment banks, with a global reach and operations in many business sectors. Newly launched Marcus by Goldman Sachs is a consumer banking division of the investment bank Goldman Sachs. It was launched in 2016 and offers a range of financial products and services to individual customers, including savings accounts, personal loans, and home improvement loans. The aim of Marcus is to provide a simple, transparent, and easy-to-use online platform for consumers to manage their finances and access credit.
Details of the Investigation
While there are not many details about the investigation at this time, it is important to consider that banks need to build intricate systems that keep an eye on both the financial institution and its customers. By law, they must identify their patrons and understand how they use their accounts, while simultaneously looking out for suspicious activities. Regulators likewise demand to see suitable client assistance and fraud prevention as proof of good administration. For the biggest banks, the costs for these systems are divided between their vast customer bases, but for smaller banks they are pricey burdens that have caused industry consolidation. The Wall Street powerhouse's Main Street presence never came close to that of its large bank competitors.
The Federal Reserve began a standard review of Goldman's consumer business in 2021, which has since escalated into an investigation, according to people familiar with the matter. Simultaneously, the Consumer Financial Protection Bureau has also initiated a probe into Goldman's credit-card business, including how the bank handles bill errors, refunds cardholders, and advertises its cards
Conclusion
The investigation launched by the Federal Reserve into Goldman Sachs Group Inc.'s consumer business provides a glimpse into the complex and potentially risky nature of the banking sector. As the inquiry has revealed, banks need to be closely monitored to ensure that they have the proper safeguards in place while expanding their lending. The investigation of Goldman Sachs further highlights the need for more effective oversight and regulation of the banking sector, in order to protect both consumers and financial institutions.
