Business Definition for: bank holding company
bank holding company
company that owns or controls two or more banks or other bank holding companies. As defined in the Bank Holding Company Act of 1956, such companies must register with the
board of governors of the federal reserve system
and hence are called registered bank holding companies. Amendments to the 1956 act set standards for acquisitions (1966) and ended the exemption enjoyed by one-bank holding companies (1970), thus restricting bank holding companies to activities related to banking. The
financial services modernization act of 1999
liberated Bank Holding Companies that qualify as
financial holding companies
to acquire or create as subsidiaries securities firms and insurance companies.
bank holding company
entity controlling one or more commercial banks. Bank holding companies are closely supervised by the Federal Reserve Board. Companies owning 25% or more of the voting stock in a bank, or controlling a majority of its directors, are required to file periodic financial statements with the Federal Reserve Board of Governors. U.S. branch offices of foreign banks also are supervised by the Federal Reserve Board. The Bank Holding Company Act sets standards for acquisitions and permits interstate acquisitions and nationwide branch banking. Although the act previously restricted bank holding company activities to those that are banking related, the
gramm-leach-bliley act of 1999
significantly widened the scope of authorized activities, allowing any well-capitalized bank holding company to become a
Financial Holding Company (FHC)
, providing a wide range of banking, investment advisory, and insurance-related services. Bank holding companies are often identifiable by the words banc or bancshares in the corporate name.
See also
Regulation Y
,
one-bank holding company
,
permissible nonbank activities
bank holding company
company that owns or controls two or more banks or other bank holding companies. Such companies must register with the
board of federal reserve system
and hence are called registered bank holding companies.
Related Terms:
Federal Reserve regulation governing banking and nonbanking activities of bank holding companies and the divestiture of impermissible nonbank activities. The regulation spells out the procedures for forming a bank holding company and procedures to be followed by bank holding companies acquiring voting shares in bank or nonbank companies. The regulation also lists those nonbank activities that are deemed closely related to banking and therefore permissible for bank holding companies.
corporation owning at least 25% of the voting stock of a commercial bank. An amendment to the Bank Holding Company Act, enacted by Congress in 1970, extended Federal Reserve supervision of bank holding companies to corporations owning only one bank. Formation of the one-bank holding companies, beginning in the late 1960s, gave rise to the leveraged holding company: commercial banks were no longer dependent largely on depositors' funds to underwrite loans and other investments. Bank holding companies are allowed to issue commercial paper in capital markets.
This ability to finance bank operations through holding company debt gave banks greater flexibility in raising capital to support a wide variety of activities by the subsidiary bank, and by affiliate companies.
The 1970 law also required nonbank commercial corporations to divest their banking subsidiaries.
financial services other than deposit taking and lending, approved by the Federal Reserve Board as permissible activities for bank holding companies and financial holding companies. The list of nonbank activities was significantly broadened by the gramm-leach-bliley act of 1999. In general, financial holding companies may enter into almost any activity considered "financial" in nature, except those activities the act specifically excludes, such as insurance underwriting and real estate development. The Federal Reserve can approve certain nonbanking activities of financial holding companies regarded as complementary to banking, on a case-by-case basis, after consultation with the Treasury Department.
The Federal Reserve Board also approves nonbanking activities of bank holding companies on a case-by-case basis, following guidelines in Federal Reserve Regulation Y, and the Fed's assessment of the expected public benefits, and the likely impact on regulated financial institutions. Examples of approved nonbank activities are operating a consumer finance company, selling mutual funds, equipment leasing, and securities underwriting.
Referring Terms:
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