Bank Holding Companies

Bank Holding Companies

A bank holding company (BHC) is a corporate structure that owns a bank as its primary business. It may own other subsidiaries (affiliates of the bank) that engage in activities other than banking. The Federal Reserve Board determines permissible activities of these nonbanking subsidiaries based on the provisions of Section 4(c)(8) of the Bank Holding Company Act.

Section 4(c)(8) provides a “laundry list” of permissible nonbank activities for bank holding companies. These include providing services to the bank subsidiaries, such as accounting, advertising, data processing, courier services, personnel services, and underwriting blanket bond insurance for bank employees. Bank holding companies may hold shares of other companies as a fiduciary, and may own less than 5% of the shares of any other company. They may also own the shares of foreign companies that do most of their business abroad, and the shares of export trading companies.

A provision of 4(c)(8) allows the Federal Reserve to approve other nonbank activities that are “closely related to banking.” The Fed’s Regulation Y lists these activities. Permissible nonbank activities under Regulation Y include consumer finance, credit card, mortgage and commercial financial operations; industrial loan companies; trust companies; financial counseling services; leasing agencies; investment in community development corporations; financial data processing services; bank-related courier services; credit life and home mortgage insurance; money transmittal; management consulting for other financial institutions; collection agencies; tax preparation services; consumer credit bureaus; consumer financial counseling; securities brokerage; government securities underwriting; printing and selling checks; and operating an options trading system.

Bank holding companies with less than $50 million in assets, or operating in towns of fewer than 5,000 people, can sell insurance. The Federal Reserve has also approved bank holding company investments of 5-10% in subsidiaries that underwrite commercial paper, mortgage-backed securities, and municipal revenue bonds.