Goldman Sachs and Morgan Stanley got approval to become bank holding companies regulated by the US Federal Reserve, a move that ends the traditional investment banking model.
The move, which will enable the firms to take deposits and buy retail banks more easily in the latest government step to restore calm to chaotic financial markets, puts the last two major US investment banks squarely within the government safety net.
Under the plan, Goldman Sachs and Morgan Stanley would be able to borrow permanently from the central bank. The move comes at the request of Goldman and Morgan, according to a source familiar with the application.
The Fed said it was making the same collateral deals available to the broker-dealer subsidiary of Merrill Lynch, which is being acquired by Bank of America.
Goldman Sachs said it would move assets from a number of strategic businesses, including its lending businesses, into an entity called GS Bank USA that would have more than $150 billion in assets.
Goldman said it intends to grow its deposit base through acquisitions and organically.
Similarly, Morgan Stanley, which has been weighing a merger with Wachovia Corp, said the new status would give it “flexibility and stability to pursue new business opportunities.”
Becoming bank holding companies gives the firms access to deposits, which are insured by the Federal Deposit Insurance Corp. While the firms had temporary access to the Primary Dealer Credit Facility, this move makes access to the discount window permanent.
Recently, bank holding companies have not had the difficulties that investment banks have had in securing funds.
At the same time, Goldman and Morgan will now have capital requirements. (Reuters)