Has anyone here thought about what a Morgan Stanley retail branch would look like?  Do bank tellers really fit the Morgan Stanley mold?  Does Morgan Stanley even have the IT infrastructure to begin building a retail operation?  Should Morgan Stanley just buy a retail bank?  Is Morgan Stanley really going to go through with this?

No doubt, these were all questions asked by Morgan Stanley executives after the bank made public its decision to become a depository financial institution.  After all, why would a Wall Street icon want to get into branch banking?  For that matter, why would a Wall Street icon want to get into internet banking either (e.g., the e*Trade model).

Yet, that was exactly what Morgan Stanley was planning to do in late 2008 after its precarious cash position left it with few options.  However, the venerable Wall Street landmark finally realized that branch banking just wasn’t its business.  According to a recent article in American Banker, Morgan Stanley announced that it was no longer pursuing a branch strategy and, instead looking at ways to offer retail banking as a personal service to its wealth management clients.

While there is no way to tell whether or not this strategy will pay off.  However, the potential is exciting – both for Morgan Stanley and for the banking industry.  As we all know, most mega-banks are simply a collection of acquired old banks that have been glued together and repainted.  And, the complex maze of IT infrastructure that lives underneath the new paint is one of the most significant obstacles to achieving modernization of the banking industry.

By not getting into branch banking and, instead, trying a new approach, Morgan Stanley could – could – be setting the direction of a new model for the country’s largest banks – one that Goldman Sachs has also announced it intends to follow.  By not gluing together old, failed banks, Morgan and Goldman have the opportunity to create an IT architecture that is fully transparent, fully paperless and fully integrated with its wealth management systems.

Imagine the possibilities:  Credit decisions based on a total picture of an individual’s creditworthiness, where one division of the bank has knowledge of assets held by another division.  Sophisticated cross-sell systems that communicate efficiently with all of the bank’s core systems.  The potential to electronically originate loans and fund them quickly.

True, Morgan Stanley may just walk away from branch banking altogether.  However, it is worth daydreaming about what an institution of its size could accomplish if it decided to see this strategy through.