Some investors believe Goldman Sachs Group Inc may try to shed its commercial banking charter to sidestep U.S. government efforts to rein in exorbitant Wall Street pay.

But regulators may force the firm to stay in the banking system.

The U.S. Federal Reserve is proposing new rules to limit pay packages in an effort to curb excessive risk-taking. Banks are expected to bridle under the new restrictions, with Goldman taking particular umbrage because of its history of outsized compensation deals for strong performers.

But Goldman is a massive bank -- its $890 billion in assets make it the fifth-largest in the United States -- and any difficulty it faces could bring trouble to the financial system. That means regulators are likely to continue to take a keen interest in the bank, investors said.

The stakes are high. Regulators are struggling to ensure that they fix the financial system so that the market meltdowns of 2008 are not repeated.

The government is going to find a way, one way or another, to include (Goldman) in regulations, said Walter Todd, a portfolio manager at Greenwood Capital Associates in South Carolina.

Goldman, for its part, said it would not seek a change.

(The) Fed is our supervising regulator and we have no plans for that to change, spokesman Lucas van Praag said.

But some investors like the idea of Goldman without a bank charter.

Goldman has slowly been extracting itself from an embrace with the government that began in October, when it received $10 billion of bailout funds as the financial system was collapsing.

Goldman paid that money back in June. In July, it redeemed warrants held by the U.S. Treasury for $1.1 billion.

Getting rid of its New York banking charter could be one of the last steps it takes to reduce government control over its affairs. Goldman would give up the support of the Federal Reserve in exchange for lighter regulation.

If there's confidence that Goldman has endured the worst of the financial crisis, shedding the charter makes all the sense in the world, said Anton Schutz, president of Mendon Capital Advisors in Rochester, New York.

Goldman and Morgan Stanley, the two largest U.S. investment banks, converted to bank holding companies in September 2008 to assuage concerns about their access to funds amid the credit crunch.

HITTING THE BOTTOM LINE

The Fed's compensation rules will apply to all employees of Fed-regulated banks, not just the bosses, according to a Fed source. Goldman, in the first half of 2009, set aside $11.3 billion for its year-end bonus pool, equal to about half of its revenues.

Fed regulation might not just limit compensation, but could also reduce Goldman's ability to borrow, curbing the bank's trading revenue.

Bank earnings are hindered by too much regulation, said Tom Sowanick, co-president and chief investment officer of Omnivest Group LLC.

That may be so, but regulators are unlikely to give up without a fight, said Lawrence White, a professor at New York University's Stern School of Business and a former bank regulator.

It is going to be a huge issue, White said, given all of the history..

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