Global financial services provider Goldman Sachs and Morgan Stanley will now become bank holding companies, and come directly under the purview of the Federal Reserve, a move that will entail stricter regulations for the previously lightly regulated investment banks.

"The Federal Reserve Board on Sunday approved, pending a statutory five-day antitrust waiting period, the applications of Goldman Sachs and Morgan Stanley to become bank holding companies," the central bank of US said in Sunday night.

This move was pursuant to the bankruptcy of Lehman Brothers and the acquisition of Merrill Lynch by Bank of America.

The transition of Goldman Sachs and Morgan Stanley from investment banks status to a Federal Bank [Get Quote] Holding Company would provide ongoing access to the Federal Reserve Bank discount window and expanded opportunities for funding.

"We believe that Goldman Sachs, under Federal Reserve supervision, will be regarded as an even more secure institution with an exceptionally clean balance sheet and a greater diversity of funding sources," Goldman Sachs Chairman and CEO Lloyd C Blankfein said in a statement yesterday.

Meanwhile, Morgan Stanley Chairman and Chief Executive Officer John J Mack said, "this new bank holding structure will ensure that Morgan Stanley is in the strongest possible position with the stability and flexibility to seize opportunities in the rapidly changing financial marketplace."

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