WASHINGTON — The Federal Reserve took another big step late Sunday to reshape Wall Street and end the era of goliath investment banks, even as Congressional Democrats worked to put their imprint on the Treasury Department's unprecedented $700-billion plan to shore up the economy.
The Fed gave the green light for the two remaining major investment banks -- Goldman Sachs Group Inc. and Morgan Stanley -- to become bank holding companies that can create commercial banks to take federally insured deposits, make an array of loans and otherwise act like any other bank.
The change subjects the two companies, which already had limited banking powers, to much stricter federal regulation. But that may save them from the vagaries of Wall Street, and the risk that they could fall victim to the credit squeeze that has claimed two of their major rivals since March.
The new line of inexpensive funding -- bank deposits -- and lending powers could help the firms gain the stability and flexibility that have helped other major banking companies, such as JPMorgan Chase & Co., Bank of America Corp. and Wells Fargo & Co., withstand the turmoil in the financial system this year.
The banking charter also gives the companies permanent access to the Fed's borrowing window, a privilege the central bank opened to investment banks in March, but only temporarily.
Meantime, Democrats were busy rolling out some of the details on changes they want to make in Treasury's bailout plan, seeking to ensure that Main Street, not just Wall Street, receives help. Their moves set the stage for tough bargaining this week with the White House in the heat of a political campaign.
As Treasury Secretary Henry Paulson hopscotched the Sunday talk shows urging lawmakers to move swiftly, Democrats said they would push for changes that include increasing aid for homeowners at risk of foreclosure, limiting executive compensation at companies that benefit from the bailout and establishing tough oversight of the rescue plan.
"I won't support a program that signs a $700-billion check and says 'Come back someday when you've resolved the issue,' " Sen. Christopher Dodd (D-Conn.), chairman of the Senate Banking Committee, told reporters Sunday afternoon. "We all want to get this job done, but we want to get it done right."
