Goldman Sachs and Morgan Stanley, the last surviving big investment banks on Wall Street, have become regulated banks and will now be subject to bank capital requirements, reports the FT. In a statement issued at 9.30pm Sunday, the Federal Reserve said it had approved their applications – subject to a five-day waiting period for potential antitrust issues - to become traditional bank holding companies, under direct Fed regulation. In the transition period, the Fed will make loans to both entities and to the broker-dealer subsidiary of Merrill Lynch against collateral acceptable for posting either by a bank or a securities firm. The Fed will also lend to Goldman, Morgan and Merrill’s London-based broker dealer subsidiaries directly. The move effectively spells the end of the investment banking industry as a separate sector, leaving behind only small boutique securities firms, and ends the decades old division of the US financial industry into two halves. As banks, Goldman and Morgan Stanley will be allowed to take deposits from savers, thus reducing their reliance on funding in the short-term repo market.
