Goldman Sachs, Morgan Stanley become regulated banks

Washington, Sep 22 : Global financial services provider Goldman Sachs and Morgan Stanley will now become bank holding companies, and come directly under the purview of the Federal Reserve, a move that will entail stricter regulations for the previously lightly regulated investment banks.

"The Federal Reserve Board on Sunday approved, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies," the central bank of US said in a statement last night.

This move was pursuant to the bankruptcy of Lehman Brothers and the acquisition of Merrill Lynch by Bank of America.

The transition of Goldman Sachs and Morgan Stanley from investment banks status to a Federal Bank Holding Company would provide ongoing access to the Federal Reserve Bank discount window and expanded opportunities for funding.

"We believe that Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and agreater diversity of funding sources," Goldman Sachs Chairman and CEO Lloyd C Blankfein said in a statement yesterday.

Meanwhile, Morgan Stanley Chairman and Chief Executive Officer John J Mack said, "this new bank holding structure will ensure that Morgan Stanley is in the strongest possibleposition with the stability and flexibility to seize opportunities in the rapidly changing financial marketplace."

In order to provide liquidity support to these banks during their transition from investment banks to regulated banks, the Federal Reserve Board has authorised the Federal Reserve Bank of New York to extend credit to the US broker-dealer subsidiaries of Goldman Sachs and Morgan Stanley, the statement added.

"We view regulation by the Federal Reserve Board as appropriate and in the best interests of protecting and growing our franchise across our diverse range of businesses,"Goldman Sachs added.

Morgan Stanley's Marc said "....we remain intensely focused on continuing to provide world-class service and advice to our clients and deliver long-term value to ourshareholders."

These credits can be provided against all types of collateral that may be pledged at the Federal Reserve's primary credit facility or at the existing Primary DealerCredit Facility (PDCF).

Besides, the Federal Reserve has also made these collateral arrangements available to the broker-dealer subsidiary of Merrill Lynch, the statement said.

In addition, the Board also authorised the Federal Reserve Bank of New York to extend credit to the London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley and Merrill Lynch against collateral that would be eligible to be pledged at the PDCF, the statement added.