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Abank holding company is acompany that controls one or morebanks, but does not necessarily engage in banking itself.[1] Thecompoundbancorp (banc/bank +corp[oration]) orbancorporation is often used to refer to such companies as well, particularly in the United States.
In the United States, abank holding company, as provided by theBank Holding Company Act of 1956 (12 U.S.C. § 1841et 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 theFederal Reserve System.
TheFederal Reserve Board of Governors, under Regulation Y (12 CFR225) has responsibility for regulating and supervising bank holding company activities, such as establishingcapital standards, approvingmergers 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 theOffice of the Comptroller of the Currency or theFederal Deposit Insurance Corporation.
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 ofshareholders on a tax free basis, borrow money, acquire other banks and non-bank entities more easily, and issuestock with greater regulatory ease. It also has a greater legal authority to conductshare repurchases of its own stock.
The downside includes responding to additional regulatory authorities, especially if there are more than 2,000 shareholders (note: prior to the Jobs Act orJumpstart Our Business Startups Act, the shareholder number was 300), at which point the bank holding company is forced to register with theSecurities and Exchange Commission. There are also added expenses of operating with an extra layer of administration.
As a result of the2007–2008 financial crisis, many traditionalinvestment banks and finance corporations such asGoldman Sachs,Morgan Stanley,[3]American Express,CIT Group and GMAC (nowAlly Financial)[4] converted to bank holding companies to gain access to theFederal Reserve's credit facilities.
In theUnited Kingdom, theBank of England refers to bank holding companies as “parent financial holding companies” or “parent mixed financial holding companies.”[5][6]
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