2 big investment banks will now take deposits
WASHINGTON - The Federal Reserve yesterday said 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.
That 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 the last remaining independent investment banks would not be able to survive in their current form. There had been speculation they would be acquired by commercial banks, whose ability to take deposits would give them a stable source of funding.
In the surprise announcement late yesterday, the central bank said that to provide increased 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.
Goldman and Morgan Stanley will be able not only to set up commercial bank subsidiaries, 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. 