More foreign ownership of Wall Street will be the best way of avoiding a prolonged economic slump in the U.S., National Bank Financial Ltd. suggests.

In a research note, NBF says that 2008 will ho down in history as the year the top-five Wall Street investment banks suddenly disappeared from the radar screen. “Contrary to U.S. commercial banks, which are subject to the Basle accord and to oversight from the U.S. Federal Reserve Board, it is worth noting that these top-five U.S. investment dealers have grown at a very fast pace over the past five years (cumulative $4.3 trillion in assets in 2007 from $1.8 trillion in 2002) and have seen their leverage ratios increase substantially,” it says.

“With this ongoing liquidity crisis and re-intermediation process, having permanent access to the Fed’s discount window and a more stable funding process (such as personal deposits) became essential to attract foreign investors with deep pockets,” it notes. This desire for deposits is behind the decisions of both Morgan Stanley and Goldman Sachs to become bank holding companies and of Merrill Lynch & Co. Inc. to sell itself to Bank of America.

That’s important because, as NBF suggests, “Looking ahead, an increase in foreign ownership on Wall Street is probably the best route for the U.S. to avoid the Japanese 1990s lost decade and a costly contribution from U.S. taxpayers.”