The crunch in Wall Street’s credit markets has forced the remaining two independent banks to be brought under Federal Reserve regulations. This will help in widening the funding sources for the two investment banks, Goldman Sachs Group Inc. and Morgan Stanley.
These two firms can now take loans directly from the Central Bank as their ability to do is has been increased by the Fed officials. Access to a wider pool of collateral has also been granted to them. According to Fed officials, the two securities firm’s application requesting to become bank holding companies has been approved by the Federal Reserve Board.
A week after the collapse of the Lehman Brothers Holdings Inc. and taking over of Merrill Lynch & Co by the Bank of America Corp., Morgan Stanley and Goldman turn to Fed for help. With questions raised on whether the two firms would be able to withstand without getting funds at a cheaper rate following upheaval on Wall Street, Morgan Stanley had started negotiating with Wachovia Corp. for a possible merger.
These firms will now work under a bank holding structure and access to direct loans from the Central Bank will provide enough liquidity to support their transition. Last week saw shares of Goldman falling by 16 percent and those of Morgan Stanley falling by 69 percent.
According to the former chairman, Federal Deposit Insurance Corp., William Isaac, Wall Street as we have known has almost come to an end. He went on to say that this is sad because the entrepreneurial risks taken by Wall Street companies over the years have immensely benefited the country.
