The approval represented the latest reshaping of the financial services industry, which is undergoing its worst credit crisis in decades.
In announcing the action, the Fed cited "emergency conditions."
The Fed's approval for American Express was similar to the decision it made in September to transform the country's two biggest investment banks, Goldman Sachs Group Inc. and Morgan Stanley, into bank holding companies.
That move bolstered the two institutions after the collapse of Lehman Brothers, which became the largest bankruptcy filing in U.S. history. Like American Express, Goldman and Morgan Stanley gained the ability to borrow federal money and build a base of deposits in hopes of reassuring investors and other banks.
AmEx last month reported that its profit fell 24 percent in the third quarter as cardholders restrained their spending and had more trouble paying off debt.
Last month, it announced plans to cut 10 percent of its global work force and painted a bleak economic picture, saying it did not expect to meet its financial targets until business conditions improved.
In its quarterly filing with the Securities and Exchange Commission on Oct. 31, the company said it expected write-offs in its credit card portfolio to continue to increase in the fourth quarter and into next year.
The New York-based company has reported four straight quarters of profit declines as a rising number of consumers struggle to pay off debt and reduce spending in the face of the worsening economic downturn.