Goldman, Morgan Stanley to change status

Monday, 22 September 2008 12:00

Goldman Sachs and Morgan Stanley, Wall Street’s last two independent investment banks, have applied to change their status in a bid to survive the financial crisis.

The Federal Reserve has approved the banks’ applications to become bank holding companies, pending a five-day anti-trust waiting period.

In addition, the central bank is extending credit to the banks to improve their liquidity.

The board also authorised the extension of credit to the London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley, and Merrill Lynch against collateral to be pledged at the Federal Reserve.

Effectively, this will allow the banks to take deposits, easing their short-term funding problems.

By taking deposits, the banks put themselves under greater regulatory scrutiny, but can use collateral to borrow from the central bank.

The move significantly changes the US banking landscape, ending the separation of investment and commercial banking that was introduced in the 1930s to restore confidence during the Great Depression.

Announced late last night, the decision came after US Congress is hammering out a $700 billion rescue plan to bail out the financial industry.

Comments Bubble Comments

blog comments powered by Disqus

Twitter: My Finances


Join the conversation at #news_myfinances


Newsletter sign up

Interests

In addition to the weekly newsletter, which areas of finance would you like to hear from us about:

Tick this box if you would like us to send you promotions from carefully selected third parties.

By signing-up you agree to the terms of use and privacy policy.

sign-up button

Get the latest information on: