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Why Morgan Stanley’s E*Trade Deal Means Bigger Banks

The E*Trade Financial Corp. App Ahead Of Earnings Figures
Photographer: Andrew Harrer/Bloomberg

Morgan Stanley and E*Trade Financial Corp. were Wall Street opposites: One an investment banking firm with a historic pedigree that catered to corporations and the wealthy, the other a discount brokerage that had pioneered cheap online trading. Now they’re merging, for reasons that say a lot about how the U.S. financial landscape is being reshaped. After a decade in which Wall Street giants mostly stood pat, in part because of the fallout from the “too big to fail” bailouts of 2008, the desire to get even bigger is coming back.

Would it sound simplistic to say that the biggest reason is for its money? To be more specific, the $56 billion deposit base E*Trade is bringing. Deposits matter to Morgan more than most of the biggest U.S. banks. Unlike JPMorgan Chase, Bank of America, Citigroup or Wells Fargo, its history was solely as an investment bank until the 2008 financial crisis prompted it to branch out. Post-crisis regulations that discourage reliance on short-term borrowing and the low-interest rate environment that’s slashed what banks pay savers since then have made deposits the most coveted form of funding for all banks.