The US Federal Reserve agreed late on Sunday to allow investment banks Goldman Sachs and Morgan Stanley to become bank holding companies, giving them easier access to credit to help them survive the financial crisis.
The announcement completes an overhaul of the structure of the banking industry, which had been broken up in the 1930s into commercial and investment banks.
Goldman and Morgan Stanley had been the last two independent Wall Street banks, but had been under pressure to find merger partners.
The move came as the US Congress considered an unprecedented US$700 billion rescue plan designed to bail out the troubled financial industry. The Fed’s decision places the banks under supervision by bank regulators and opens a wider range of credit to them.
In a statement, the Federal Reserve said its board had approved the applications of Goldman Sachs and Morgan Stanley to become bank holding companies and authorized credit to the two firms “against all types of collateral” that commercial banks can use to get central bank loans.
The Fed also made these collateral arrangements available to the broker-dealer subsidiary of investment firm Merrill Lynch, which was bought a week earlier by Bank of America.
The US$700 billion bailout proposal, now in the hands of Congress, comes on the heels of the unprecedented government rescue of giant insurer American International Group and the seizure of mortgage-finance giants Fannie Mae and Freddie Mac.
Goldman and Morgan Stanley have had access to Fed credit as a “primary dealer” of securities under a temporary program announced by the Fed after the collapse earlier this year of Bear Stearns.
But the opening of this line of credit to non-banks had raised concerns because the institutions had not been subject to the same regulations as banks.
Goldman said in a statement it would become the fourth-largest US bank holding company “and will be regulated by the Federal Reserve.”
“We view regulation by the Federal Reserve Board as appropriate and in the best interests of protecting and growing our franchise,” the company said.
Goldman Sachs already has two active deposit-taking institutions, Goldman Sachs Bank USA and Goldman Sachs Bank Europe PLC, with a total of some US$20 billion in deposits.
Morgan Stanley, which has some US$36 billion in bank deposits, said it sought the new status from the Federal Reserve “to provide the firm maximum flexibility and stability to pursue new business opportunities as the financial marketplace undergoes rapid and profound changes.”
Some reports said Morgan Stanley was in merger talks with Wachovia, one of the largest US banks, and that China Investment Corp could take a stake in the company as part of a deal.
Meanwhile, US Treasury Secretary Henry Paulson urged Congress to adopt his financial rescue plan without delay.
“We need this to be clean and quick and we need to get it in place,” Paulson said in an ABC television interview on Sunday.
The treasury secretary also said the US was pressing other countries to forge bailouts for their financial institutions similar to the rescue plan.
“I’m also going to be pressing our colleagues around the world to design similar programs for their banks and institutions when they are appropriate,” Paulson said on Fox News on Sunday.
But while voicing general support for the bailout plan, leaders of the Democratic-controlled Congress said there should be some help for ordinary Americans hammered by the worst housing slump in decades.
Senator Charles Schumer of New York said the rescue was needed but had to be carried out in an open, transparent way and provide some relief for homeowners as well.
“We have to do something about the mortgage crisis, not just foreclosures but the price of housing, which is affecting everyone on Main Street,” the influential Democrat told Fox television.
Senate Banking Committee Chairman Chris Dodd agreed that a “clean and simple” bill was necessary, but also called for changes to the proposal to ensure accountability and assistance for homeowners.
GEARING UP: An invasion would be difficult and would strain China’s forces, but it has conducted large-scale training supporting an invasion scenario, the report said China increased its military pressure on Taiwan last year and took other steps in preparation for a potential invasion, an annual report published by the US Department of Defense on Wednesday showed. “Throughout 2023, Beijing continued to erode longstanding norms in and around Taiwan by employing a range of pressure tactics against Taiwan,” the report said, which is titled “Military and Security Developments Involving the People’s Republic of China (PRC) 2024.” The Chinese People’s Liberation Army (PLA) “is preparing for a contingency to unify Taiwan with the PRC by force, if perceived as necessary by Beijing, while simultaneously deterring, delaying or denying
PEACEFUL RESOLUTION: A statement issued following a meeting between Australia and Britain reiterated support for Taiwan and opposition to change in the Taiwan Strait Canada should support the peaceful resolution of Taiwan’s destiny according to the will of Taiwanese, Canadian lawmakers said in a resolution marking the second anniversary of that nation’s Indo-Pacific strategy on Monday. The Canadian House of Commons committee on Canada-Chinese relations made the comment as part of 34 recommendations for the new edition of the strategy, adding that Ottawa should back Taiwan’s meaningful participation in international organizations. Canada’s Indo-Pacific Strategy, first published in October 2022, emphasized that the region’s security, trade, human rights, democracy and environmental protection would play a crucial role in shaping Canada’s future. The strategy called for Canada to deepen
TECH CONFERENCE: Input from industry and academic experts can contribute to future policymaking across government agencies, President William Lai said Multifunctional service robots could be the next new area in which Taiwan could play a significant role, given its strengths in chip manufacturing and software design, Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) chairman and chief executive C.C. Wei (魏哲家) said yesterday. “In the past two months, our customers shared a lot of their future plans with me. Artificial intelligence [AI] and AI applications were the most talked about subjects in our conversation,” Wei said in a speech at the National Science and Technology Conference in Taipei. TSMC, the world’s biggest contract chipmaker, counts Nvidia Corp, Advanced Micro Devices Inc, Apple Inc and
LEAP FORWARD: The new tanks are ‘decades more advanced than’ the army’s current fleet and would enable it to compete with China’s tanks, a source said A shipment of 38 US-made M1A2T Abrams tanks — part of a military procurement package from the US — arrived at the Port of Taipei early yesterday. The vehicles are the first batch of 108 tanks and other items that then-US president Donald Trump announced for Taiwan in 2019. The Ministry of National Defense at the time allocated NT$40.5 billion (US$1.25 billion) for the purchase. To accommodate the arrival of the tanks, the port suspended the use of all terminals and storage area machinery from 6pm last night until 7am this morning. The tanks are expected to be deployed at the army’s training
RSS