Business and Finance

Goldman Sachs and Morgan Stanley gave up their cherished investment banking status in return for cover under the Fed’s wing to survive a financial storm that U.S. authorities aim to tackle with a $700 billion bailout plan.

The Federal Reserve approved the two bank’s transformation into bank holding companies regulated by the central bank, effectively ending Wall Street’s investment banking model and subjecting the two to much tighter regulation.

In return it gives Goldman Sachs and Morgan Stanley greater access to central bank funds and makes it easier for them to buy retail banks.

“It creates a perception of greater safety and supervision. It really rationalizes the regulatory system. It should be good for both Goldman Sachs and Morgan Stanley,” said Chip MacDonald, mergers partner at law firm Jones Day.

The move is the latest effort by the U.S. authorities to restore calm to chaotic financial markets follows frantic weekend talks between the Bush administration and the Congress on the bailout scheme to prevent further financial market turmoil from hurtling the economy into a severe recession.

The largest-ever bank rescue would give sweeping powers to the U.S http://fcrwizard.com. Treasury to buy up toxic mortgage-related debt from financial firms, including U.S. subsidiaries of foreign banks.

The bailout plan follows a wrenching week that transformed Wall Street with Lehman Brothers’ failure, the agreed sale of Merrill Lynch & Co and a government takeover of ailing insurer AIG. It was also possible that within days, Morgan Stanley would accept a partner.

Asia stocks rose on Monday as details of the plan emerged, but the U.S. dollar eased and U.S. Treasury debt prices edged up as investors played it safe before the mechanics of the plan are worked out. 

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