End of an era in investment banking

Goldman Sachs and Morgan Stanley, the two big survivors of Wall Street’s recent turmoil, have given up their status as investment banks and are becoming bank holding companies. It means they will gain easier access to financing, but will also be more tightly regulated.

Economist Dr Paola Subacchi said this is part of a much bigger upheaval in the financial world: “We are seeing something which is probably an historical moment and we think there is a total restructuring, re-thinking of the international banking and financial system as a result of the crisis.”

The worst financial crisis since the Great Depression has created 500 billion euros of toxic – that is potentially worthless – investments.

The US authorities rescue measures this year total 1.3 trillion euros. It is forecast that 85,000 thousand jobs will be cut from the financial sector. The fact that the Federal Reserve has agreed to the once high-flying Wall Street investment banks converting into more conventional depositary institutions is part of Washington’s latest effort to restore calm to chaotic markets.

It followed frantic talks between the Bush administration and Congress to prevent the crisis from pushing the US economy into severe recession.