Bank holding company

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A bank holding company is a company that controls one or more banks.^[1]

United States

In the United States, a bank holding company, as provided by the Bank Holding Company Act of 1956 (12 U.S.C. § 1841(a)(2)(A) et seq.), is broadly defined as any company that has control over a bank.^[2] All bank holding companies in the US are required to register with the Board of Governors of the Federal Reserve System.

Regulation

The Federal Reserve Board of Governors, under Regulation Y (12 C.F.R. Pt. 225) has responsibility for regulating and supervising bank holding company activities, such as establishing capital standards, approving mergers and acquisitions and inspecting the operations of such companies. This authority applies even though a bank owned by a holding company may be under the primary supervision of the Comptroller of the Currency or the Federal Deposit Insurance Corporation.

Bank holding company status

New or smaller banks often re-structure themselves into bank holding companies to take advantage of the greater financial flexibility this corporate and legal status permits. Becoming a bank holding company makes it easier for the firm to raise capital than as a traditional bank. The holding company can assume debt of shareholders on a tax free basis, borrow money, acquire other banks and non-bank entities more easily, and issue stock with greater regulatory ease. It also has a greater legal authority to conduct share repurchases of its own stock.

The downside includes responding to additional regulatory authorities, especially if there are more than 300 shareholders, at which point the bank holding company is forced to register with the Securities and Exchange Commission. There are also added expenses of operating with an extra layer of administration.

2008 Credit Crisis

As a result of the Global financial crisis of 2008, many traditional investment banks and finance corporations such as Goldman Sachs, American Express, CIT Group and General Motors Acceptance Corporation^[3] successfully converted to bank holding companies in order to gain access to liquidity and funding. This arrangement allows them access to the Federal Reserve's discount window and benefit from the Troubled Asset Relief Program, but the companies are now subject to more regulation and their ability to have exposure to risk will be limited.

See also

• Gramm-Leach-Bliley Act

External links

• Top 50 Bank Holding Companies from the Federal Reserve Website
• "holding companies of UK banking sector institutions". http://www.bankofengland.co.uk/statistics/reporters/snotice/sn200503/cagp1116.pdf. 

References