Late Sunday night, the U.S. Federal Reserve approved applications filed on Sunday from Goldman Sachs and Morgan Stanley to become bank holding companies, enabling them to take deposits, borrow permanently from the central bank, while putting them under supervision of the central bank.
The move, the latest government step to restore calm to chaotic financial markets, puts the last two major U.S. investment banks squarely within the government safety net.
If approved after a five-day waiting period, the transition could also make it easier for the banks to buy retail banks.
To provide increased liquidity to the companies, the Fed agreed to lend to the firms' broker-dealer subsidiaries on the same terms as the Fed discount window for banks and the central bank's Primary Dealer Credit Facility lending window for investment banks.
It said it was making the same collateral deals available to the broker-dealer subsidiary of Merrill Lynch.
The move comes at the request of Goldman and Morgan, according to a source familiar with the application.
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.
Quick questions - What does this do to the merger talks of Morgan Stanley and Wachovia? Does this make it easier for them to finalize a merger? The answer would seem to be yes.
Source: Reuters
The move, the latest government step to restore calm to chaotic financial markets, puts the last two major U.S. investment banks squarely within the government safety net.
If approved after a five-day waiting period, the transition could also make it easier for the banks to buy retail banks.
To provide increased liquidity to the companies, the Fed agreed to lend to the firms' broker-dealer subsidiaries on the same terms as the Fed discount window for banks and the central bank's Primary Dealer Credit Facility lending window for investment banks.
It said it was making the same collateral deals available to the broker-dealer subsidiary of Merrill Lynch.
The move comes at the request of Goldman and Morgan, according to a source familiar with the application.
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.
Quick questions - What does this do to the merger talks of Morgan Stanley and Wachovia? Does this make it easier for them to finalize a merger? The answer would seem to be yes.
Source: Reuters
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