Investment firms will now be banks
(22 September 2008 – USA) The US Federal Reserve has approved requests by Goldman Sachs and Morgan Stanley that will allow the two investment firms to become bank holding companies.
Goldman Sachs and Morgan Stanley will both give up their investment banking status in return for cover under the Federal Reserve in order to survive the ongoing financial crisis.
The Federal Reserve has approved the two applications to change into bank holding companies regulated by the central bank.
This will also subject the two to much tighter regulation.
The move effectively ends Wall Street's investment banking model, with the falls and acquisitions of fellow investment banking powerhouses, Lehman Brothers, Merrill Lynch and Bear Stearns.
In return for the new operating status, Goldman Sachs and Morgan Stanley will receive greater access to central bank funds and reportedly makes it easier for them to buy retail banks.
While the two firms currently have temporary access until January 2009 to the discount window, which was opened to them in March to relieve liquidity restraints, this will now become permanent access with the change.
The Fed will also extend the credit to the broker-dealer subsidiaries of Goldman Sachs and Morgan Stanley.
Federal Reserve has also made these collateral arrangements available to the broker-dealer subsidiary of Merrill Lynch as well as the London-based broker-dealer subsidiaries of all three firms.
The Federal Reserve has approved the two applications to change into bank holding companies regulated by the central bank.
This will also subject the two to much tighter regulation.
The move effectively ends Wall Street's investment banking model, with the falls and acquisitions of fellow investment banking powerhouses, Lehman Brothers, Merrill Lynch and Bear Stearns.
In return for the new operating status, Goldman Sachs and Morgan Stanley will receive greater access to central bank funds and reportedly makes it easier for them to buy retail banks.
While the two firms currently have temporary access until January 2009 to the discount window, which was opened to them in March to relieve liquidity restraints, this will now become permanent access with the change.
The Fed will also extend the credit to the broker-dealer subsidiaries of Goldman Sachs and Morgan Stanley.
Federal Reserve has also made these collateral arrangements available to the broker-dealer subsidiary of Merrill Lynch as well as the London-based broker-dealer subsidiaries of all three firms.
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