A bank holding company
is a company
with significant ownership of one or more banks
A bank holding company, under the laws of the United States, is any entity that directly or indirectly owns, controls, or has the power to vote 25% or more of a class of securities of a U.S. bank. Bank holding companies are required to register with the Board of Governors of the Federal Reserve System. Bank holding companies are subject to the Bank Holding Company Act of 1956 (en:et seq.).
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 own stock.
The downside includes responding to an 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.