CHICAGO: The troubled financial arm of auto giant General Motors is seeking to become a federally regulated bank holding company in a move which would give it access to a share of a 700 billion dollar bailout package, GMAC said Thursday.

GMAC said it intends to launch a private offer to "exchange a significant amount of its outstanding indebtedness for a reduced principal amount of new indebtedness" in order to raise the capital it will need to meet the new regulatory requirements.

GMAC, which diversified beyond auto loans into mortgages, commercial lending, insurance and online banking, has been badly hit by the subprime lending crisis and resulting credit crunch.

While it would face much tighter regulation as a bank holding company than it does under its current status as an industrial bank, switching status would have significant benefits.

GMAC would be able to have its debt guaranteed by a federal banking insurance program, would be able to get cheap, short-term loans from the Federal Reserve and could be able to sell some of its bad loans to the government under a rescue plan approved earlier this month.

GMAC said it "would obtain increased flexibility and stability" as a bank holding company and "also expects to have expanded opportunities for funding and for access to capital."

"The benefits of this type of restructuring would allow us to put additional capital and liquidity resources immediately to work in financing consumers and automotive dealers," GMAC chief executive officer Alvaro de Molina said in a statement.

Cleaning up GMAC's books could also help facilitate a merger between GM and Chrysler.

Chrysler's owner, Cerberus Capital Management, currently holds a 51 percent stake in GMAC, which will have to raise an additional one billion dollars to cover bonds that will mature in January, 2009.

Sources close to the negotiations have said Cerberus would like to swap Chrysler for GM's remaining 49 percent stake in GMAC.