The Morgan Stanley building in New York City.
The Morgan Stanley building in New York City. - 
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KAI RYSSDAL: This may come as the least surprising obituary ever. But Wall Street as we knew it died last night. We were already down to two big independent investment banks after the sale of Bear Stearns and Merrill Lynch and the demise of Lehman Brothers. Now Goldman Sachs and Morgan Stanley have thrown in the towel. They've become what are called bank holding companies. I guess that doesn't really translate, though. What it means in practice is that the two will face more government regulation. They won't be able to take as many risks. And they'll make less money.

Marketplace's Jeremy Hobson has more from New York.

JEREMY HOBSON: Right now, for every dollar Goldman Sachs and Morgan Stanley have in the bank, they're borrowing about $30 to buy their investments. That's some serious leverage, and they may have to cut it in half when they become bank holding companies.

Christopher Whalen is managing director at Institutional Risk Analytics. He says while neither bank would have wanted this a year ago . . .

CHRISTOPHER WHALEN: You know what, if the choice is between survival and subjecting yourself to the bank regulatory world, you choose the latter.

Whalen says they'll have to give the government greater access to their balance sheets. But in return, they'll get access to the Fed's discount loan window. And they'll finally be playing on the same field as their competition -- which might be good news for them.

WHALEN: The broker-dealers like Bear and Lehman, Goldman, all of them, Merrill Lynch, were second-class citizens in the old regime. They had to clear through a bank. Bear Stearns had to clear through JP Morgan. They didn't have direct access to the Fed. So now they are going to have an equal playing field.

David Stowell is a professor of finance at Northwestern's Kellogg School of Business. He says the two investment banks were probably forced into their status change by the Fed.

DAVID STOWELL: But they're also being pressured by their clients. For example, hedge funds in particular are very sensitive, having seen Lehman go bankrupt recently, to seeing a less-leveraged model, a less-risky balance sheet so that they can have confidence in the firms.

And it seems that holy grail -- restoring confidence -- is the surest way out of this crisis for all banks.

In New York, I'm Jeremy Hobson for Marketplace.

Follow Jeremy Hobson at @jeremyhobson