According to the regulator, the sovereign wealth fund can make the investment as it is not looking to exercise a controlling share in the bank.
The ruling stated that the CIC previously invested in Morgan Stanley trust preferred securities, which allowed the fund to take a ten per cent stake in common stock by August 2010.
In a statement the Fed said: âCIC has stated that it does not propose to control or exercise a controlling influence over Morgan Stanley and that its indirect investment will be a passive investment.â
The regulator added that the acquisition would also have no impact on competition regulations or negative effects on the concentration levels of market deposits.
CIC, which is owned by the Chinese government, acquired 2.49 per cent of voting common stock belonging in Morgan Stanley in 2009.
Morgan Stanley has assets under management worth $626 billion.
By Jim Ottewill