The Fed said the normal five-day waiting period required under law could be skipped after consulting with the Department of Justice.
The Fed announced late Sunday it had approved the request, which will allow Goldman and Morgan Stanley to create commercial banks that can take deposits, bolstering the resources of both institutions.
The change is the latest seismic shift on Wall Street as the financial system tries to cope with mounting problems that began more than a year ago with the subprime mortgage crisis.
That change will allow the two venerable institutions to set up commercial banks that will be able to take deposits, significantly bolstering the resources of both institutions. It will also grant them permanent access to emergency loans supplied by the Fed rather than the temporary loan status they have had since last March when the Fed moved to prop up investment banks following the forced sale of Bear Stearns.
On Monday, Morgan Stanley signed a letter of intent to to Japan's largest bank, Mitsubishi UFJ Financial Group. Financial terms of the deal were not disclosed. If the deal is completed, the price would be based on Morgan Stanley's book value after Mitsubishi completes due diligence.
Meanwhile, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke kept up their outreach with Congress, holding meetings over the weekend aimed at convincing lawmakers to move quickly to approve a $700 billion package. It would allow the government to buy up a mountain of bad mortgage loans that have been weighing down financial companies since they became engulfed in a severe credit crisis 14 months ago.
Congressional leaders have endorsed the plan's main thrust, but said it must be expanded to include help for people on Main Street as well as the big Wall Street financial firms who have lost billions of dollars through their bad investment decisions.
"We will simply not hand over a $700 billion blank check to Wall Street and hope for a better outcome," House Speaker Nancy Pelosi said Sunday in a statement. "Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive compensation."
But Pelosi, concerned about spooking markets with the possibility that the bailout package might not win approval, predicted that Congress would pass the measure this week once Democrats won the changes they are seeking.
Sen. Christopher Dodd, chairman of the Senate Banking Committee, said it's just as important to act responsibly as it is to move hastily on legislation aimed at stabilizing the country's troubled financial markets.
Dodd voiced confidence Monday in Paulson, telling CBS' The Early Show "we've got the right man" to deal with the problem that has roiled not only Wall Street but international markets as well.
The Senator added that any relief package should be tailored to protect taxpayers, who, Dodd, said, should be the "first in line" to get money back once conditions in the industry stabilize and recover.
Sunday on 60 Minutes, the Democratic and Republican nominees for president weighed in on Wall Street's tumultuous week of government bailouts.
Sen. Barack Obama said he thought by the time Paulson and Bernanke actually tackled the unraveling financial situation,
The Democratic nominee added: "I think that our basic principle has to be that you don't bail out shareholders. You don't bail out CEOs who are getting golden parachutes and $100 million bonuses. That you are doing everything you can to protect taxpayers, making sure that people are able to stay in their homes, and that their mortgages don't go overboard because of bad decisions that other people make."
His opponent, Sen. John McCain, who agreed with Paulson and Bernanke's actions, blamed the crisis on Wall Street greed:
"There's a social contract that Adam Smith talked about between capitalism and the people. It's been broken by greed and access, aided and abetted by a government in Washington that's dominated by special interests and corruption," McCain said.
"When the time comes and the economy recovers then anything that's gained back is gonna go to the taxpayers first," McCain said. "I'm not saying this isn't gonna be messy. And I'm not saying it isn't gonna be expensive. But we have to stop the bleeding."
Making the rounds of four of the five Sunday talks shows, Paulson stressed that time was critical to get the proposal passed because of the urgent need to get global credit markets functioning more normally after they essentially froze up following a number of shocks last week.
The surprise Fed announcement announcing approval of the status change for Goldman and Morgan Stanley was yet another indication of how quickly events are moving on Wall Street.
The stock of the two companies had come under pressure as investors began to worry about their future following the bankruptcy last week of investment bank Lehman Brothers and the forced sale of another investment bank, Merrill Lynch, to Bank of America.
In other action late Sunday, the administration announced that it was modifying a program announced just last Friday to try to bolster the teetering $3 trillion money-market mutual fund industry by using a $50 billion Treasury fund to provide temporary guarantees to money-market accounts.
Responding to complaints from banks that this change would put them at a competitive disadvantage for deposits, the Treasury said Sunday that the guarantees will only cover funds that were in the accounts as of last Friday. The guarantees had been put in place to stem a wave of withdrawals from mutual fund accounts that had been sparked largely by panicked institutional investors.
The banking industry had complained that the new guarantees ran the risk of sparking withdrawals by their depositors, who might decide to transfer their bank deposits to money-market mutual funds. Both accounts now have government backing and the mutual funds would not have the $100,000 limit imposed on deposit insurance for banks.
In another change that highlighted how quickly Treasury is being forced to put new programs into place, Treasury said Sunday that funds deposited in tax-exempt money-market mutual funds as of last Friday would be covered by the new guarantees. Originally, the department had said those funds would not be covered because it might jeopardize their tax-exempt status.
Paulson and Bernanke made the joint decision last week that the only way to calm turbulent markets was to deal with the root cause of all the troubles, billions of dollars of bad mortgage debt sitting on the books of major financial companies.
Paulson argued in his Sunday appearances that the cost of doing nothing would be far more severe because the clogged credit markets would make it harder for businesses to get the loans they need to keep operating and for consumers to get the credit they need to keep spending.
Paulson said he was confident that other major countries would take similar actions to support their financial systems, helping to avert a global meltdown.
Congressional Democrats said they understood the need for urgency but insisted that the measure needed to provide help for homeowners threatened with losing their homes and also include more oversight over how the bailout program is operated. While Republicans seemed likely to support those changes, it was less likely that they would support Democratic demands that the bailout program place limits on the compensation of Wall Street executives or change bankruptcy laws to allow judges to modify home mortgages.