WASHINGTON – The Federal Reserve said Sunday it had granted a request by the country’s last two major investment banks — Goldman Sachs and Morgan Stanley — to change their status to bank holding companies.
The Fed announced that it had approved the request of the two investment banks. The change in status will allow them to create commercial banks that will be able to take deposits, bolstering the resources of both institutions.
The change continued the biggest restructuring on Wall Street since the Great Depression.
The request for the change to bank holding companies was granted by a unanimous vote of the Fed’s board of governors during a late Sunday meeting in Washington.
The change of status means both companies will come under the direct regulation of the Federal Reserve, which regulates the nation’s bank holding companies. The banking subsidiaries of the two institutions will face the stricter regulations that commercial banks are required to meet. Previously, the primary regulator for Goldman and Morgan Stanley was the Securities and Exchange Commission.
Shares of both institutions had come under pressure ever since the bankruptcy filing last week by investment bank Lehman Brothers and the forced sale of investment bank Merrill Lynch to Bank of America.
Investors feared that the last remaining independent investment banks would not be able to survive in their current form. There had been speculation that both institutions would be acquired by commercial banks, whose ability to take deposits would give them a stable source of funding.
The decision by the two giants of finance to get approval from the Fed to change their own status represented another dramatic development in one of the most turbulent periods in Wall Street history.
In the surprise announcement late Sunday, the central bank said that to provide increase funding support to the two institutions during the transition period, they would be allowed to get short-term loans from the Federal Reserve Bank of New York against various types of collateral.
Capitalism, it’s all good until the market turns on you, and then it’s “run and hide” under the wing of the American taxpayer. Wimps.