Fed approves status change for major banks

The companies will be able to accept deposits in order to bolster their resources.

WASHINGTON (AP) — It was the end of an era on Wall Street as the Federal Reserve granted permission for the last two major investment banks — Goldman Sachs and Morgan Stanley — to become bank holding companies in order to stay in business.

The Fed announced late Sunday evening that it had approved the request, which will allow Goldman and Morgan Stanley to create commercial banks that can take deposits, bolstering the resources of both institutions.

The change is the latest seismic shift on Wall Street as the financial system tries to cope with mounting problems that began more than a year ago with the subprime mortgage crisis. On Tuesday, the Dow Jones industrial average fell 372.75, or 3.27 percent, to 11,015.69.

The Fed had originally said Sunday night that the change in status from investment banks to bank holding companies would not take place for five days, pending review on antitrust grounds. The Fed announced Monday, however, that after discussions with the Justice Department, the status change for both institutions could take place immediately.

After weekend meetings where the Treasury Department, Fed and congressional staff ironed out the program’s details, Sen. Christopher Dodd said Monday it’s equally important to act responsibly as it is to move quickly on the legislation needed to stabilize the country’s troubled financial markets.

Dodd, chairman of the Senate Banking committee, said on CBS’ “The Early Show” that many members of Congress believe a legislative relief package also should be tailored to protect taxpayers in the best way possible.

Democrats in Congress said they will add provisions in the bailout measure to protect people in danger of losing their homes and measures to cap executive compensation at firms who get to unload their bad mortgages debt onto the government.