Goldman Sachs and Morgan Stanley to fall under Bank Holding Company Act controls

[JURIST] The Federal Reserve Board on Sunday preliminarily approved [press release] applications by independent investment banks Goldman Sachs and Morgan Stanley [corporate websites] to convert to bank holding companies, which would put the banks under Federal Reserve regulation, grant them increased access to bank funds and allow them to build their deposit bases. The move will place both companies, which are now regulated by the Securities and Exchange Commission (SEC), under the tighter regulations of the FDIC and the Bank Holding Company Act [text], effectively lowering the amount of debt the companies can risk in relation to the amount of money they actually have and requiring a higher amount of capital. Goldman Sachs CEO Lloyd Blankfein said [press release] of the transition:

When Goldman Sachs was a private partnership, we made the decision to become a public company, recognizing the need for permanent capital to meet the demands of scale. While accelerated by market sentiment, our decision to be regulated by the Federal Reserve is based on the recognition that such regulation provides its members with full prudential supervision and access to permanent liquidity and 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 a greater diversity of funding sources.
Meanwhile, officials from Morgan Stanley said [press release]:
The Firm does not expect significant adverse tax or accounting effects from this new status, nor does the Firm expect there to be limitations on its activities that would have a material impact on Morgan Stanley’s overall business.
The Federal Reserve's approval will remain preliminary until the completion of a required five-day antitrust waiting period. Bloomberg has more. Reuters has additional coverage.

Last week, members of the US Congress spoke out [JURIST report] about regulatory changes and investigations following a stock market drop propelled by Lehman Brothers' Chapter 11 bankruptcy filing and the sale of Merrill Lynch [AP report]. Speaker of the House Rep. Nancy Pelosi (D-CA) reiterated [press release] plans for a new economic stimulus package designed to "create jobs and address some of the most immediate consequences of the Administration’s serious mismanagement of our economy." Senate Banking, Housing and Urban Affairs Committee Chairman Sen. Chris Dodd (D-CT) [official website] said [statement text] that the Banking Committee will continue to probe regulatory oversight and seek legislative solutions "strengthening the housing sector, developing a second stimulus package, and restructuring the regulation of the financial sector.”


 

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