Capital Gold Group Report: GOLDMAN SACHS & MORGAN STANLEY CHANGE INTO BANK HOLDING COMPANIES - UNPRECEDENTED ADDITION TO HISTORICAL WEEK ON WALL STREET
Last Big Investment Banks Change Status
By MARTIN CRUTSINGER
AP
WASHINGTON (Sept.
21) - 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.
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.
The Fed said its action would take final effect after a five-day waiting period required under law.
The decision means
that the Goldman and Morgan Stanley will be able not only to set up
commercial bank subsidiaries to take deposits, giving them a major
resource base, but they will also have the same access as other
commercial banks to the Fed's emergency loan program.
After the collapse of Bear Stearns and its forced sale to JP Morgan
Chase last March, the Fed used powers it had been granted during the
Great Depression to extend its emergency loans to investment banks as
well as commercial banks. However, that extension was granted on a
temporary basis.
But as commercial
banks, Goldman Sachs and Morgan Stanley will have permanent access to
emergency loans from the Fed, the same privilege that other commercial
banks enjoy.
The action by the
Fed's board of governors in Washington came on a day when the Bush
administration continued to campaign for quick congressional approval
of its request for authority to use $700 billion to purchase a mountain
of bad mortgage debt held by financial companies. The effort
represented the boldest action yet aimed at stabilizing chaotic
financial markets.
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