Wall Street's last two independent investment banks, Goldman Sachs and Morgan Stanley, have applied to change their status in a bid to survive the financial crisis.
The Federal Reserve has approved the banks' applications to become bank holding companies, pending a five-day anti-trust waiting period.
In addition, the central bank is extending credit to the banks to improve their liquidity.
The board also authorised the extension of credit to the London-based broker-dealer subsidiaries of Goldman Sachs, Morgan Stanley, and Merrill Lynch against collateral to be pledged at the Federal Reserve.
Effectively, this will allow the banks to take deposits, easing their short-term funding problems.
By taking deposits, the banks put themselves under greater regulatory scrutiny, but can use collateral to borrow from the central bank.
The move significantly changes the US banking landscape, ending the separation of investment and commercial banking that was introduced in the 1930s to restore confidence during the Great Depression.
Announced late last night, the decision came after US Congress is hammering out a $700 billion rescue plan to bail out the financial industry.
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