By Olesya Dmitracova and Steve Slater

LONDON (Reuters) - The transformation of Goldman Sachs and Morgan Stanley into bank holding companies accelerated the dismantling of the standalone investment bank model, putting the business into the hands of big universal banks or boutiques.

The latest twist to a dramatic shake-up in the global bank landscape saw Goldman Sachs and Morgan Stanley on Sunday agree to tighter regulation in exchange for easier access to financing and greater flexibility to buy retail banks.

The two were the only big independent U.S. investment banks left after the failure of Lehman Brothers and the agreed takeover of Merrill Lynch last week.

"The events of last week will materially affect the outlook for and structure of investment banking," said Bruno Paulson, analyst at Bernstein.

The balance of power in the investment banking industry has been shifting to universal banks with a strong investment bank unit rather than the standalone investment banks for some time, and recent market turmoil sped up the process, a banker said.

"The credit crunch revealed a lot of the problems with the (standalone) model. It depended on huge amounts of leverage and they didn't have the balance sheet and capital strength to insulate them," he said.

UNIVERSAL BANKING

With investment bank units taking big writedowns during the credit crisis, banks have been forced to reconsider the merits of universal banking that spans retail banking, insurance, mortgage lending, fund management and investment banking.  Continued...