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US banks make shock status switch US banks make shock status switch
(about 1 hour later)
The last two major investment banks in the US have changed their status to become bank holding companies, allowing them to take deposits from investors.The last two major investment banks in the US have changed their status to become bank holding companies, allowing them to take deposits from investors.
The changes should enable Goldman Sachs and Morgan Stanley to raise more funds by opening commercial banks.The changes should enable Goldman Sachs and Morgan Stanley to raise more funds by opening commercial banks.
The move - part of a huge restructuring effort on Wall Street - will also give them access to Federal Reserve support.The move - part of a huge restructuring effort on Wall Street - will also give them access to Federal Reserve support.
The US government has announced a $700bn (£382bn) package to tackle the worst financial crisis for decades.The US government has announced a $700bn (£382bn) package to tackle the worst financial crisis for decades.
Congress is considering the plan, drawn up by Treasury Secretary Henry Paulson, which would set up a fund to buy back much of the bad debt held by financial institutions. Congress is considering the plan, drawn up by Treasury Secretary Henry Paulson, which would set up a fund to buy back much of the bad debt held by financial institutions, which had triggered the credit crisis.
'Greater safety'
There had been fears, given the recent turbulence in the financial markets, that Morgan Stanley and Goldman Sachs would not be able to survive as independent players, and both their share prices have come under pressure.
Both banks had filed requests with the Federal Reserve to change their status, and late on Sunday, the Fed announced it had granted the requests.
The last few weeks have seen dramatic and unexpected changes among banks, with Merrill Lynch being bought by Bank of America and Lehman Brothers filing for bankruptcy protection.
Earlier this year, Bear Stearns was acquired by JP Morgan Chase.
Commenting on the change for Morgan Stanley and Goldman Sachs, Chip MacDonald, mergers partner at law firm Jones Day, said: "It creates a perception of greater safety and supervision. It really rationalises the regulatory system".
"It should be good for both Goldman Sachs and Morgan Stanley."
Solution sought
Mr Paulson has urged other countries to follow the American example in dealing with the international financial crisis.Mr Paulson has urged other countries to follow the American example in dealing with the international financial crisis.
Bank vulnerability
Both presidential candidates have been having their say about the financial crisis.Both presidential candidates have been having their say about the financial crisis.
Republican John McCain had stinging words for President George W Bush, saying he should take the blame for the crisis along with both parties in Congress. Republican John McCain said President George W Bush should take the blame for the crisis along with both parties in Congress.
Mr McCain said he was enraged by the greed of Wall Street speculators and said the rescue plan should be funded by cutting government waste, rather that through taxation. Mr McCain said he was enraged by the greed of Wall Street speculators and said the rescue plan should be funded by cutting government waste, rather than through taxation.
Meanwhile Barack Obama, for the Democrats, suggested Mr Paulson could be asked to play a role in his administration should he win the presidency. Meanwhile Democrat presidential candidate Barack Obama suggested Mr Paulson could be asked to play a role in his administration should he win the presidency.
But Mr Obama criticised the bail-out proposal, calling for independent supervision of its implementation.But Mr Obama criticised the bail-out proposal, calling for independent supervision of its implementation.
Investment banks have proved particularly vulnerable to the economic malaise - with Lehman Brothers going bankrupt this week and Merrill Lynch being sold to the Bank of America.
Shares in Goldman Sachs and Morgan Stanley came under severe pressure amid the struggles of their fellow investment banks.
Analysts speculated that both institutions would be acquired by commercial banks, whose ability to take deposits would give them a stable source of funding.
Instead, the banks filed requests with the Federal Reserve to change their status.
And late on Sunday, the Fed said in a statement it had granted the requests.