NEW YORK (

TheStreet

) -- The

Federal Reserve Board

allowed the Chinese government's investment arm to buy up to 10% of

Morgan Stanley

(MS) - Get Report

shares Tuesday as part of an agreement struck in 2007.

In approving the deal, the U.S. regulator stated CIC has committed "not to exercise or attempt to exercise a controlling influence over the management or policies of Morgan Stanley."

CIC now owns 116 million common shares of Morgan Stanley, making it the company's second-largest common shareholder behind

State Street Corp

. However,

Mitsubishi UFJ

is Morgan Stanley's largest shareholder with a 20% stake if preferred shares are taken into account.

The increased stake is the result of the mandatory conversion of preferred to common shares as part of an agreement struck by the two institutions in Dec. 2007. The 2007 investment was one of several large stakes in U.S. financial companies taken by sovereign wealth funds as the crisis unfolded.

Merrill Lynch, now owned by

Bank of America

(BAC) - Get Report

and

Citigroup

(C) - Get Report

struck similar deals with the investment arms of Singapore, Korea and Kuwait at around the same time.

--

Written by Dan Freed in New York

.

Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.