Morgan Stanley and Goldman Sachs have lost their independence

U.S. financial group Morgan Stanley and Goldman Sachs have dropped the status of independent investment banks and received approval for converting themselves into bank holdings, governed by the Federal Reserve (Fed).

Article Translated by:
NiC Translation Agency

As a result, the two banks can accept deposits, have easier access to financing from the Fed, and can more easily acquire commercial banks.

Morgan Stanley and Goldman Sachs were the last two big independent investment banks from the U.S. after Lehman Brothers' bankruptcy and Merrill Lynch's takeover by Bank of America.

The change involves more stringent regulations from the Fed on transactions regarding borrowed funds and, implicitly, lower profits.

Under this new statute, Morgan Stanley and Goldman Sachs will be regulated by the Fed, while the Commission for Securities and Transactions (Securities and Exchange Commission - SEC) will be just supervising the securities business of the two groups in the U.S.

Like commercial banks, Morgan Stanley and Goldman Sachs will have long-term access to low interest loans rates and deposits guaranteed by the Fed.

In addition, the interest of Morgan Stanley for a merger with banking group Wachovia Corp. fell, even if negotiations continue with other investors, said a closed source.

The financial group declined to comment on a possible merger negotiations, but stated that the new statute gives "sufficient stability and flexibility to pursue new opportunities for business."

Goldman Sachs intends to increase its base of deposits through the acquisitions of other banks, especially those with financial problems, said Lucas van Praag, spokesman of the group.

The American group shares fell 45% in the first four days of the last week, and then recovered the loss as a result of U.S. authorities plan expectations to establish a fund that is 700 billion dollars worth for taking over the high risk assets of the financial system.

Goldman Sachs announced that it would transfer the total assets of 150 billion U.S. dollars to a new entity, GS U.S. Bank, which will become one of the first ten banks in the U.S.