Remaining investment firms become Fed-regulated banks

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NEW YORK – Morgan Stanley and Goldman Sachs are abandoning their investment banking status and have applied to become bank holding companies.

Last week’s crisis has rung the death knell for the US investment banking model as the credit crunch has demonstrated the need for banks to gain revenue from retail saving deposits. The banks will now be regulated by the Federal Reserve rather than the US Securities and Exchange Commission; as such they will face much tighter regulation. However, they will now also gain access to the Fed’s discount window on the same terms as other Fed-regulated banks. The move also smoothes the way for any future merger with another commercial bank, which has been touted as a likely possibility for Morgan Stanley.

The Fed announced that it had approved the application on Sunday, subject to a five-day antitrust waiting period.

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