Over the weekend, the federal reserve agreed to convert the two premier investment banks, Goldman Sachs and Morgan Stanley into bank holding companies. This means that Wall Street, traditional known as a collection of less regulated independent firms that buy and sell securities will not exists anymore.
Once Goldman Sachs and Morgan Stanley are converted, they will be regulated under the federal reserve just as other traditional banks, which means more rules and restrictions for these two companies.
Why Convert?
For Goldman and Morgan, the move will allow them to:
- accept bank deposits to ease cash flow concerns
- take advantage of federal reserve’s lending for banks
- more easily merge with other banks
Why This Helps Normal Citizens like Us
Most of us don’t deal with Goldman Sachs and Morgan Stanley so what does this news mean to us? Here are some potential benefits.
- The two investment banking firms will likely decrease their leverage. Morgan Stanley is talking about lowering it significantly. This means less risk for the whole financial credit system.
- Morgan Stanley may not need to merge with Wachovia now that they can get funding themselves
- Eventually two more places to bank with, meaning there are more competition and hopefully better services for the customer
- Gives the two firms a better chance to survive, so there is less potential that there is another crisis like Lehman Brothers and Bear Sterns (we all know what happened to our stock values when those two news broke out)
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