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Updated from 8:56 a.m. EST

GMAC Financial Services

faces major regulatory obstacles in its quest to become a bank holding company, since its owners,

Cerberus Capital Management


General Motors

(GM) - Get General Motors Company Report

are not banks themselves.

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General Motors' financing arm announced on Thursday morning its application to become a bank holding company, which would make it to be eligible for aid under the government's $700 billion bank rescue plan.

However, federal banking laws strictly limit the amount of influence bank shareholders are allowed to have if they are not themselves registered as bank holding companies. For example, they are not allowed to own more than 25% of a bank and there are limits to the amount of board representation they may have.

Cerberus owns 51% of GMAC and General Motors owns 49%. One executive involved in discussions with GMAC and its owners expects GM to dilute its stake via a debt for equity swap with GMAC creditors, details of which were announced Thursday. A GMAC spokeswoman referred questions to GM and Cerberus, both of which declined to comment.

Another person involved in the GMAC bank talks says Cerberus believes it can preserve its existing ownership structure, where the private equity firm's stake is split up into different pieces, held by investors in Cerberus, Cerberus leader Stephen Feinberg, and other legal entities that are affiliated with Cerberus. That remains an open question, but the fact that GMAC actually applied for bank status after several weeks of discussions with regulators would appear to suggest its owners are optimistic they will get approved.

Earlier this month, GMAC reported its third-quarter loss widened to $2.52 billion compared to a loss of $1.6 billion a year ago. Steep losses at the company's insurance division weighed heavily on the results.

GMAC also warned that its mortgage lending division, ResCap, could fail. In September, GMAC announced it would close all of its 200 retail offices and lay off about 5,000 employees, with the bulk of cuts coming at ResCap. The division lost $1.91 billion in the third quarter, compared with $2.26 billion a year ago.

GMAC has tightened its criteria for U.S. consumers seeking financing, including limiting purchases to those with a credit score of 700 or above and limiting how much financing about the value of a new car consumers can receive.

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