Morgan Stanley and Goldman Sachs will soon be bank holding companies. This means Wall Street as we knew it has ceased to exist.
The Fed granted a request from Morgan and Goldman to make the switch, subject to a five day waiting period. This will have several impacts:
- Their primary regulator will now be the Fed Reserve, not the SEC. This will make them subject to tighter disclosure and regulatory requirements.
- They will be able to accept bank deposits, which eventually should provide a more stable base of financing (but not “stable”).
- They will have better access to the Fed’s lending facilities.
- They may be able to avoid mark-to-market accounting on some of their assets, instead accounting for them as “held to maturity,” the way banks do. This could be huge, as it’s the mark to market that has killed the capital ratios of many firms.
- They will more easily be able to buy or merge with banks, thus rapidly increasing the size of their deposit bases.
- They will likely decrease their leverage: Morgan Stanley is talking about moving from 20X+ to 10X-15X.
This move, combined with The Bailout, could also eliminate the need for Morgan Stanley to merge with Wachovia.
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