"The people at Goldman are smart; there must have been a reason for it." So says one financial institutions banker at a rival firm about Goldman, Sachs & Co.'s decision to become a New York state-chartered bank. By contrast, Goldman's rival, Morgan Stanley, applied for a national association charter on Sept. 22, the day both firms received approval to become bank holding companies.

Morgan Stanley, which inherited some 500 retail branches across the country from its merger with Dean Witter, had little choice but to go for a national charter. But why would Goldman go the state-charter route? Nationally chartered banks are regulated by the Office of the Comptroller of the Currency, while state-chartered ones come under the oversight of local regulators.

Sources say the move was suggested by Sullivan & Cromwell LLP's chairman, H. Rodgin Cohen, Goldman's go-to legal adviser. Also weighing in was a "small army" of bankers and lawyers, as well as E. Gerald Corrigan, a former head of the Federal Reserve Bank of New York and current Goldman managing director and member of the chairman's office. Goldman's state charter, a source explains, signals to the world that the firm has no ambitions to expand its reach nationally, or to acquire a large depository institution. It also may reflect some astute political calculations.

"They'll be the biggest game in town," says Douglas Landy, a partner at law firm Allen & Overy LLP, explaining that Goldman will be, by far, the largest bank to be regulated by the State of New York Banking Department, superseding the Bank of New York Mellon Corp., M&T Bank Corp. and Deutsche Bank Trust Co. Americas (formerly Bankers Trust, which Deutsche Bank AG acquired in 1999). New York's banking department oversees some 3,500 financial entities, with combined assets of more than $2.2 trillion. J.P. Morgan Chase & Co. had been the largest New York state-chartered bank until it took on a national charter following its 2004 merger with Bank One Corp, says Landy. He adds that it certainly does not hurt Goldman to be regulated by "friendly New York state folks."

Indeed, having a crown jewel of U.S. banking under its ambit does seem to have flattered the relevant regulator. Goldman's move "reflects serious deliberation," which "reflects [Goldman's] confidence in New York as a progressive state," says Richard H. Neiman, the state's superintendent of banks. Neiman adds that the state agency will be able to react more quickly as a regulator than the OCC.

"It adds vitality to the dual banking system," Neiman says, suggesting that the national regulator didn't move aggressively enough to protect consumers from the predatory and fraudulent lending that characterized some activities in the subprime mess.

"That's why in the Olympics, you don't have one judge, you have three," Neiman says.