Regulators were at it again over the weekend, rewriting the rulebook of America’s financial landscape.

Late Sunday, Goldman Sachs (GS) and Morgan Stanley (MS) announced plans to become banks, seeking the sounder funding base of traditional deposit-taking institutions. The last remaining independent Wall Street brokerages will be transformed, now supervised by the Federal Reserve and other national regulators.

According to the Wall Street Journal, the Fed allowed Goldman and Morgan to reorganize themselves as bank holding companies, thereby subjecting them to more restrictive rules and regulations. The new designation offers greater access to federal lending facilities and gives the 2 firms the chance to open retail branches and accept customer deposits -- widely considered a more reliable method of funding.

The money markets, until recently the brokerages’ primary source of liquidity, were in a historic state of disorder following the collapse of Lehman Brothers and the governments’ seizure of Fannie Mae (FNM), Freddie Mac (FRE) and AIG (AIG). The uncertainty surrounding once-strong firms made access to cash highly unreliable.

Rather than merging with commercial banks, Goldman and Morgan decided to retreat, delever and rebuild under a more conservative business model.

Deposit-taking institutions face tighter capital requirements and can’t use leverage as freely as investment banks, which reduces their ability to make outsized profits when times are good. It does, however, create more insulation to protect against losses when bets go sour.

Bad bets by the truckload saddled both Goldman and Morgan with assets of such questionable value that investors feared the once-proud institutions would sheepishly follow Merrill Lynch (MER) into the arms of a big commercial bank.

Morgan had been holding talks with Wachovia (WB) about a potential merger, while Goldman adamantly refused to even consider the idea of a buyout.