By their nature, independent broker/dealers rely on short-term or overnight liquidity to fund their balance sheets. They lack the stable retail deposit bases of commercial banks. After Bear Stearns saw its wholesale liquidity dry up almost instantly, and following an attempted bailout by the Federal Reserve, the company was acquired by JPMorgan Chase in June 2008. Faced with a similar lockup of overnight credit, Lehman Brothers went bankrupt in September 2008. Facing its own liquidity crisis, Merrill Lynch agreed to be acquired by Bank of America, in a deal that was completed in January 2009. The two largest independent investment banks -- Goldman Sachs and Morgan Stanley -- converted to bank holding company structures at the height of the credit crisis during 2008. This greatly reduced liquidity pressure on the firms, as they were granted access to the Federal Reserve's discount window. The firms have also been able to grow retail deposits, although these still make up small portions of their funding. Goldman Sachs had $72.7 billion in deposits as of March 31, with total assets of $959.2 billion. At the end of the company's fiscal 2007, the company had just $15.4 billion in deposits, with $1.077 trillion in total assets. Deposits funded 7.5% of Goldman's balance sheet as of March 31, but this was up from a miniscule 1.4% at the end of fiscal 2007.
Morgan Stanley had $80.6 billion in deposits as of March 31, with total assets of $801.4 billion. At the end of fiscal 2007, Morgan Stanley had $31.3 billion in deposits and $1.045 trillion in assets. With the deposit increase and balance sheet shrinkage, Morgan Stanley now has deposits funding 10.1% of total assets, increasing from 3.0% at the end of fiscal 2007. Even though Goldman and Morgan Stanley still have relatively small deposits, the companies have made significant progress in solidifying their liquidity. In addition to the deposit growth, the conversion of Goldman and Morgan Stanley to bank holding company structures has caused the companies to file uniform financial statements with the Federal Reserve, allowing for easy comparison to other large banks. The conversion has also brought the companies directly under the Fed's regulatory and supervisory umbrella, which includes the stress tests and reviews of annual capital plans.