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SINGAPORE : The move by investment banking giants Goldman Sachs and Morgan Stanley to change their legal status to bank holding companies is unlikely to affect the organisational structure of the companies.
But market watchers said the move could restore confidence in the market.
By changing their status, the banks are subjecting themselves to tighter controls and scrutiny from national bank regulators, but it also gives them access to direct lending from the US Federal Reserve.
With this in place, confidence in the institutions may return along with money inflows.
Under US regulations, becoming a bank holding company means that both former investment banks will be directly regulated by the Federal Reserve.
They will be required to meet basic liquidity requirements.
Goldman and Morgan Stanley will also have access to a lifeline of federal funds with which to shore themselves up in difficult times.
Observers said the banks are aiming to restore investors' confidence .
Ho Yew Kee, Vice Dean and Associate Professor, Finance, National University of Singapore, said: "It basically says that 'we are going to open our books, and embrace the regulations'. They are saying that they are having the same type of scrutiny and governance as any other bank under the Federal Reserve"
There has been speculation that the banks undertook the status change in order to raise funds by opening commercial outlets, something their new status would allow them to do.
But experts said this is unlikely to happen, and that boosting faith in the market is the priority for now.
Associate Professor Ho said: "Whenever there is no trust or no confidence in the market, the money does not flow. And when money does not flow, the entire machinery of the economy breaks down, and this is something we must prevent from happening or getting worse in the current situation."
Looking ahead, market watchers expect to see Goldman Sachs and Morgan Stanley becoming better run and better supported investment banks, rather than opening branches to take deposits. - CNA/ms
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