FAQs on Morgan-Goldman changes

— -- The era of the giant investment bank is over, but the day of the gargantuan bank holding company could be just beginning. And with that rise is real danger that such outsized financial titans will become so big that they'd become, undoubtedly, too big to fail. Nevertheless, the changes give Goldman Sachs and Morgan Stanley — and the financial system — "more stability" for now, says John Foff, a senior analyst at SNL Financial. "They also give investors more transparency into these companies."

Here's a look at the latest reshaping of the financial world:

Question: Why are Morgan Stanley and Goldman Sachs doing this?

A: A major reason the banks decided to convert to bank holding companies was to gain access to a stable source of funding: customer deposits.

Investment banks have traditionally relied on borrowed money, rather than deposits, to turn a profit. But as the economy has faltered, and it's become harder — and more expensive — to borrow money, they've realized the appeal of plain-vanilla deposits.

Morgan Stanley further stabilized its finances Monday by striking an agreement to sell Mitsubishi UFJ Financial Group, Japan's largest bank, as much as a 20% stake.

The developments mean that Morgan Stanley's talks with Wachovia about a potential merger are on hold, according to a person with direct knowledge of the matter but who is not authorized to be quoted publicly.

Q: How is regulation different for a bank holding company vs. an investment bank?

A: Three ways.

First, bank holding companies have stricter requirements about the amount of capital they must hold — that is, the amount of money they have to offset losses. Historically, investment banks have had few restrictions on how much capital they must have.