Tax News

CCH (cch.taxgroup.com) reports:

  The Federal Reserve said it has approved the applications of Goldman Sachs and Morgan Stanley to change their status from investment banks to bank holding companies under the Bank Holding Company Act. The move places the firms under the supervision of bank regulators, allows them to establish commercial banks, and exposes them to a wider availability of credit.

  Goldman Sachs, founded in 1869, said it views regulation by the Fed as "appropriate and in the best interests of protecting and growing our franchise across our diverse range of businesses." The company added that under Fed supervision, it will be regarded as an even more secure institution with an "exceptionally clean balance sheet" and a greater diversity of funding sources.

  Under the new arrangement, Goldman Sachs will move assets from a number of its strategic businesses, including its existing lending businesses, into GS Bank USA. The bank will have over $150 billion in assets and will be one of the ten largest banks in the U.S.

  Morgan Stanley, meanwhile, said it will pursue initiatives to expand the retail banking services it offers its retail clients, and build a stable base of core deposits. It noted that it has more than 3 million retail accounts and as of August 31 had $36 billion in bank deposits. It will also convert its Utah industrial bank to a national bank.

  Separately, Morgan Stanley also announced it has entered into a letter of intent to pursue a strategic alliance with Mitsubishi UFJ Financial Group Inc., Japan's largest banking group. The investment in Morgan Stanley would eventually reach 20 percent of its equity.

Congressional Package

  Meanwhile, President Bush on September 22 urged members of Congress to send him the emergency package without including "unrelated provisions." However, White House Press Secretary Dana Perino indicated that the administration is willing to consider additional provisions but would want to keep them to a minimum.

  "From our perspective, the cleaner the better and the quicker the better, and the way that you get a clean and quick bill is to make sure that it is clearly, narrowly targeted to giving the Treasury these authorities in order to help stabilize the market," Perino told reporters at a press briefing on September 22.

  Although the House initially planned to leave town on September 26, House Speaker Nancy Pelosi, D-Calif., on September 19 advised reporters that federal lawmakers would stay longer, if necessary, to finish work on the Wall Street rescue package. However, as details begin to emerge about the Paulson plan, it is meeting resistance on Capitol Hill.

  Several lawmakers warned against rushing legislation too quickly through Congress. Senate Majority Leader Harry Reid, D-Nev., in a written statement, said a final package must protect the taxpayers "who are footing the bill for this legislation. That begins with more oversight, more transparency, more accountability and more controls to prevent conflicts of interest," Reid said on September 22. He added that the legislation should provide aid to homebuyers at risk of losing their homes to foreclosure.

  Former House Speaker Newt Gingrich, R-Ga., in an interview with National Public Radio, strongly opposed rushing the complicated package through Congress without hearings or time "to catch your breath." He noted that Paulson for more than a year maintained that the housing and financial sectors were healthy enough to weather any correction to an overheated housing market. Calling it "Wall Street welfare," Gingrich criticized the size of the package and the risk to taxpayers.

  By Sarah Borchersen-Keto and Paula Cruickshank, CCH News Staff

Treasury Department News Release, TDNR HP-1150

Treasury Department News Release, TDNR HP-1151

SFC Release: Baucus Statement on Latest Developments in Financial Crisis