[ by Melanie Gretchen and Howard Haykin ] Goldman Sachs has chosen a unique and, for Goldman Sachs, a quite surprising approach to dealing with the restrictive provisions of the Volcker Rule, under the Dodd-Frank Reform Act.  Yet, in many ways, the Goldman Bank strategy is actually quite in keeping with the firm long-time image and reputation – connoting wealth and luxury.  The firm has always drawn rich, famous and wealthy customers because of the firm's success in generating profits regardless of which business area they competed in. That same persona is likely to broaden the appeal of Goldman's bank to wealthy customers - including high net worth individuals, institutions and corporations – even as the firm continues to confront new regulations, market turmoil, and a slowing global economy.  The vehicle for servicing this new or expanded customer base will be the GS Bank USA Subsidiary, an in-house bank.  And, you know Goldman is fully prepared to cater to their every need. Building Up Deposits. This year alone, Goldman Sachs Group Inc. has raised $11 billion in deposits this year, mostly in GS Bank USA.  By the end of the 2nd quarter of 2012, the bank had over $57 billion in deposits, a 24% increase from the $46 billion held at the end of 2011 – that, according to a presentation to fixed-income investors. In addition to servicing and catering to wealthy customers around the world, GS Bank USA also will lend more directly to corporations, some of whom already make investments and do business with Goldman.  Goldman executives have set a goal of $100 billion in loans, up from $12 billion at the end of March. New Business, New Business Mentality. While Goldman says its financial investment in expanding its bank is a modest one, its action are nothing short of being a significant shift in its business and change in its ambitions.  The 144-year old financial institution, long known for its aggressive trading and big corporate deal-making, the bank will be operated in a completely different manner – one that's best described as "cautious." Funds to operate the bank will come principally from deposits, a safe source of low-cost funding - which are less vulnerable to the vagaries of financial markets.  Compare that to Goldman's current funding methods, that rely on borrowing cash against its securities portfolios - a strategy that left the firm dangerously exposed during the 2008 turmoil. GS Bank USA also does not expect to generate anything more than a modest income from its mortgages and loan portfolios - and this new source of revenue will not come close to replacing the profits the firm has made on proprietary trading - but which it's moving away from under the Volcker Rule provisions of the Dodd-Frank Act. Activities GS Bank USA Will Not Get Into. Goldman has no plans to open retail branches, or build a network of ATMs, or pitch credit cards, or "give away toasters," Mr. Blankfein said.  Instead, the firm will promote lending to Goldman's wealth-management clients and other wealthy individuals.  Rather than merely advising them on where to invest and offering investment funds, Goldman is now starting to collect their cash in the form of deposits and make loans to them for homes, art, boats and the like. Led by Esta Stecher, one of Goldman's top lawyers and one of its highest-ranking female executives, the banking operation will be staffed by several important risk-management employees.  The unit currently has about $100 billion in assets, or nearly 10% of Goldman's total assets, about half of which are in the form of derivatives instead of loans.

"It is difficult to make radical decisions when the rules of the game are being revised by regulators on both sides of the Atlantic and no one can confidently say how market and competitive conditions will change as new regulations are rolled out." -- Brad Hintz, an analyst at Sanford C. Bernstein & Co. in New York.

For further details, go to [WSJ, 7/17/12, Goldman Builds Private Bank"] and [Fox Business, 7/24/12, "Goldman Deposits Up $11 Billion .."].