Fed Allows Goldman, Morgan Stanley to Become Banks
By Craig Torres
Sept. 21 (Bloomberg) -- The Federal Reserve Board approved the applications of Morgan Stanley and Goldman Sachs Group Inc. to become bank holding companies, the Fed said.
``The Federal Reserve Board on Sunday approved, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies,'' the central bank said in an e-mailed press release in Washington.
Fed officials also increased the two securities firms' ability to take out direct loans from the central bank, granting access against a wider pool of collateral. That step was made ``to provide increased liquidity support to these firms as they transition to managing their funding within a bank holding company structure,'' the Fed said.
The Fed Board also authorized the New York Fed to lend to the London-based broker-dealer subsidiaries of Morgan Stanley, Goldman Sachs, and Merrill Lynch & Co., the securities firm that agreed to a takeover by Bank of America Corp. earlier this month.
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The Federal Reserve said it had approved the transformation of both Morgan Stanley and Goldman Sachs from investment banks to traditional bank holding companies, a step that would place the last two Wall Street titans under the close supervision of national bank regulators, subjecting them to new capital requirements and additional oversight.
The Fed said it would also extend additional lending to the broker-dealers of the two firms, in addition to Merrill Lynch's, as they make the transition.
The steps effectively mark the end of Wall Street as it has been known for decades, and formalizes a quid-pro-quo that regulators have warned about in the months after Bear Stearns's near collapse -- in return for access to the Fed's emergency lending facilities, the firms would need to subject themselves to more oversight. The step could have far reaching effects on their profitability and their business models.
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