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Chrysler Financial has dropped plans to convert into an industrial bank, raising further speculation about the future of what was the auto maker's primary lending arm.

Almost all of Chrysler's consumer and dealer lending has been transferred to the government-controlled GMAC Financial Services, but Chrysler Financial still oversees a $45 billion loan book.

Conversion to an industrial-loan bank, first sought almost four years ago, would have provided access to more liquidity and funding from the federal government.

The company didn't rule out a new application, but its move comes amid a planned crackdown by regulators on the lending arms of non-financial companies.

"Chrysler Financial continues to evaluate all options and may revise and file a new application for an industrial bank and deposit insurance at a future date," the company said in a statement Thursday.

Chrysler's move to drop the application last month marks the first withdrawal since the U.S. proposed last month to overhaul regulation of the lending arms of non-financial companies. Chrysler Financial originally filed its application with the Federal Deposit Insurance Corp. in May 2005.

General Electric Co. (GE) and other companies have pledged to fight the regulatory proposals, which could force them to sell or spin-off consumer lending units or accede to tighter oversight and higher capital commitments.

Chrysler Financial, based in Farmington Hills, Mich., has been in disarray since Chrysler, the auto maker, announced in May that GMAC would be the primary lending source for Chrysler consumers. The change was part of Chrysler's bankruptcy process. GMAC was given industrial bank status earlier this year.

The change reduced Chrysler's Financial's portfolio, leading the company to announce a 9% reduction in its work force in June. To date, 110 of the 350 job cuts have been made. The remaining positions will be eliminated when Chrysler Financial closes its Kansas City, Mo., call center on Aug. 31.

Chrysler Financial continues to manage its portfolio of outstanding loans to dealers and consumers worth around $45 billion. The company still writes some consumer loans.

Earlier this month, Chrysler Financial sold a $1.26 billion consumer loan-backed deal under the Federal Reserve's Term Asset-Backed Securities Loan Facility, or TALF program.

It is also seeking to extend $24 billion in short-term financing, which was raised last summer through a group of 22 banks including Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Royal Bank of Scotland PLC (RBS). The financing matures on July 31.

-By Jeff Bennett and Kate Haywood; jeff.bennett@dowjones.com; 248-204-5542

(Doug Cameron and Anusha Shrivastava contributed to this report.)