Fed OKs Goldman, Morgan as bank holding companies

[slouch]

Fed OKs Goldman, Morgan as bank holding companies - Yahoo! News

Quote:

WASHINGTON (Reuters) – The Federal Reserve approved applications on Sunday from Goldman Sachs (GS.N) and Morgan Stanley (MS.N) to become bank holding companies, putting them directly under the regulatory supervision of the U.S. central bank, the latest step to restore calm to chaotic financial markets. 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 (MER.N).

And some of you thought the fun was over.

[crazy connie]

Makes me want to run right up there and put my money in them. NOT

[CompoundInterestFan]

Sigh. There's still so much of this that I don't understand. Can someone explain the ramifications of this?

[youbet]

The mentioned companies will have enhanced liquidity by being able to borrow at the Fed discount windown and, in return, they will be regualted by the US central bank.

I'm not sure if I like this or not........

[Purron]

Things sure were busy in DC this past weekend. Lots of late night sessions. As Youbet mentioned, they will able to set up commercial bank subsidiaries to take deposits and get emergency loans from the Fed. They will come under the regulation of the Federal Reserve - under their current structure they are regulated by the SEC.

We've got a long road ahead of us to get back on solid ground. This week is going to be very interesting on Wall Street and in DC.

[riskadverse]

Quote:

Originally Posted by CompoundInterestFan Sigh. There's still so much of this that I don't understand. Can someone explain the ramifications of this?

The same as every other decision coming out of treasury and the fed lately - INFLATION!

[slouch]

It means the independent investment banking model is officially dead. Lehman and Bear Stearns failed partly because they relied on capital markets to fund their activities. All of the investment banks did. When their stocks tanked, it became harder for them to raise capital, which made their financial situation worse, which made it harder to raise capital…until they eventually failed.

The perspective now seems to be that investment banks need to be part of a commercial bank (or need to own a bank) in order to get access to a more stable source of funding (i.e., customer deposits) in addition to being able to raise money in the capital markets. This is why Merrill ran into the arms Bank of America. My guess is that behind the scenes, Goldman and Morgan Stanley realized (or were told) that they need to merge with a solvent bank pronto to ensure their continued solvency.

The regulatory approval of their applications allows them to achieve that by acquiring banks, rather than being acquired by banks. I wouldn’t be surprised to see bank merger announcements coming out for both firms in the near future.

http://en.wikipedia.org/wiki/Bank_holding_companies

[al_bundy]

only reason we had this model was because of Glass-Steagall. instead of fixing the problems in the 1930's they just passed a law saying you can't have a depository institution be an investment bank

[FinanceDude]

Quote:

Originally Posted by al_bundy only reason we had this model was because of Glass-Steagall. instead of fixing the problems in the 1930's they just passed a law saying you can't have a depository institution be an investment bank

In the 30's. they had no idea what the future would hold, they were just trying to save the US financial markets...

One could say this is the "New Deal" of the 21st century but I think that is being too positive......