In the past two weeks, chaos at Wall Street has brought major financial markets around the globe to their knees, and the last two investment banks left standing in the US are Morgan Stanley and Goldman Sachs.

They have decided to become bank holding companies, which would bring their activities under the regulation of the US Federal Reserve. (See: Goldman Sachs, Morgan Stanley surrender investment bank status)

Analysts are now saying that regional banks could be eaten by these two bank holding companies. Deals will now tend to be opportunistic, and speedily executed against targets in distress.

As Morgan Stanley and Goldman Sachs go about their business trying to transforming themselves into bank holding companies, they could potentially add around $81 billion of financial services deals that have been brought out over the past week.

Morgan Stanley plans to sell almost a 20 per cent stake for $8.4 billion to Japan's largest bank, Mitsubishi UFJ Financial Group Inc in a bid to raise capital. Goldman Sachs is looking to leverage its new position n order to purchase assets.

Morgan Stanley and Goldman will now come under new regulations and supervision and become direct competitors to Citigroup, JPMorgan Chase and Bank of America. Their governance by the Fed's rules could also end the era of fat salaries and bonuses that lent investment bankers the persona of high and mighty deal makers on Wall Street.

Goldman Sachs has said that it may raise capital to acquire assets, if it comes across the ''right opportunities'', though it denied that it had immediate plans to raise capital.

Goldman Sachs has two active deposit-taking subsidiaries namely Goldman Sachs Bank USA and Goldman Sachs Bank Europe PLC, which has combined deposits of around $20 billion. Both these will be combined into one entity and called 'GS Bank USA'. Goldman is poised to be the fourth-largest US bank by moving assets from a number of businesses into GS Bank USA, with assets over $150 billion.

Morgan Stanley, with $36 billion in bank deposits, will transform its Utah industrial bank into a deposit-taking national bank and rename it 'Morgan Stanley Bank'.

According to media reports, Morgan Stanley is in merger talks with Wachovia, one of the largest US banks with China Investment Corp taking a stake in the company as part of a deal.  (See: Morgan Stanley, WaMu, seek mergers) 

Since the beginning of the credit squeeze Morgan Stanley has lost $15.7 billion in writedowns, other types of loans and on mortgage-related securities whereas Goldman's total loss is nearly $4.9 billion.

Washington Mutual (WaMu) had put itself up for sale a week ago, and was reported to have asked Goldman Sachs to advise it.  Possible buyers for WaMu are being reported as JPMorgan Chase, HSBC, Citi, and Wells Fargo, even though there have been reports that JP Morgan Chase is abstaining from the WaMu deal.

Fresh reports in the media suggest that at least five companies are thinking about taking over WaMu, including Toronto-Dominion Bank, JPMorgan in New York, Wells Fargo & Co. of San Francisco and New York-based Citigroup Inc.

Analysts say that there would be a number of small banks in the United States that would be willing to sell out to Morgan Stanley and/or Goldman Sachs.