Who is subject to the Bank Holding Company Act?

The law was implemented, in part, to regulate and control banks that had formed bank holding companies to own both banking and non-banking businesses. The law generally prohibited a bank holding company from engaging in most non-banking activities or acquiring voting securities of certain companies that are not banks.

What does a bank holding company do?

Most banks have bank holding companies (“BHCs”). BHCs have been formed primarily to facilitate additional nonbanking activities, issue capital instruments not deemed capital for banks, and/or greater corporate, financial, and operational flexibility.

Is a bank holding company considered an affiliate?

In general, section 23A defines companies that control or are under common control with the bank to be affiliates of the bank. Control, in this case, is generally considered to be owning 25 percent or more of the voting power or stock. A holding company wholly owning a bank is an affiliate of that bank.

Can a bank holding company own real estate?

Section 4(c)(2) of the Act permits a BHC or any of its subsidiaries to acquire assets, including real property, in satisfaction of debts previously contracted (DPC) in good faith.

What can bank holding companies invest in?

Bank holding companies allow for a wider range of permissible activities than a bank. Specifically, bank holding companies can invest in up to 5 percent in any class of voting securities of an entity without prior regulatory approval.

Can a bank be a holding company?

Key Takeaways. A bank holding company is a corporate entity that owns a controlling interest in one or more banks. The one-bank holding company is simply a holding company for one bank but it has a shorter history as a more flexible arrangement for an independent bank.

What is the difference between a financial holding company and a bank holding company?

Bank holding companies are only permitted to engage in activities considered banking or “closely related to banking.” Financial holding companies are permitted to engage in activities that are: banking or closely related to banking; financial in nature; or.

What are the benefits of a holding company?

7 Benefits of a Holding Company

• Protect Assets. A holding company can hold the valuable assets of a business.
• Reduce Risk.
• Minimise Tax.
• Central Control.
• Concentrate Property Assets.
• Flexibility for Growth and Development.
• Succession Planning.

What’s different about bank holding companies?

A bank holding company is a corporation that owns a controlling interest in one or more banks but does not itself offer banking services. Holding companies do not run the day-to-day operations of the banks they own. However, they exercise control over management and company policies.

What are 23A covered transactions?

Section 23A requires all covered transactions between a bank and its affiliate to be on terms and conditions consistent with safe and sound banking practices (Safety and Soundness Requirement ), subject to certain exemptions discussed below in Special Rules and Exemptions under Regulation W, and prohibits a bank from …

Is a bank holding company a financial institution?

A financial institution that accepts deposits primarily from individuals and channels its funds primarily into residential mortgage loans. A company that directly or indirectly controls a savings association or another savings and loan holding company.

Why bank holding companies are important?

Improving the capital position or liquidity of a subsidiary bank is one critical function of a bank holding company, and one that can be significant for shareholders. The ability to issue debt instruments and downstream the proceeds as capital for the subsidiary bank is one of the key benefits of the holding company.

What is the difference between a bank and a financial holding company?

A financial holding company (FHC) is a type of corporation that engages in banking-related activities but offers non-banking financial services. A bank holding company (a company that controls two or more banks) can register as an FHC if it wants to engage in nonbanking financial activities.

Who regulates financial holding company?

The Federal Reserve oversees all FHCs. Bank holding companies can become FHCs by meeting capital and management standards. A nonbank company generating 85% of gross income from financial services can become an FHC.

What are the limitations of holding company?

The following are the demerits of holding companies:

• Over capitalization. Since capital of holding company and its subsidiaries may be pooled together it may result in over capitalization.
• Misuse of power.
• Exploitation of subsidiaries.
• Manipulation.
• Concentration of economic power.
• Secret monopoly.

What a holding company Cannot do?

The holding company can own assets like property and equipment. Therefore, if the subsidiary incurs any debts, this means that it cannot pay the assets owned by the holding company.

How many bank holding companies are there?

At year-end 2019, a total of 4,124 U.S. bank holding companies (BHCs) were in operation, of which 3,725 were top-tier BHCs.

What is regulation 23A?

Section 23A of the Federal Reserve Act (12 USC 371c) is the primary statute governing transactions between a bank and its affiliates.

Is collateral required for 23A transactions?

Section 23A and Regulation W prohibit a bank from accepting low-quality assets as collateral for a covered transaction, as well as intangible assets, guarantees, letters of credit, and equity securities of the lending bank.

What are the limitation of holding company?

Disadvantages of Holding Company

• Secret Reserves.
• Difficulty in Ascertaining Financial Position.
• Mismanagement.
• Fraud in Inter-Company Transactions.
• Forced Appointment of the Directors.
• Difficulty in Valuation of Stock.
• Oppression of Minority Shareholders.

What is holding company under Companies Act 2013?

Sec 2(46) of the Companies Act, 2013 defines as follows: “Holding company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies. 1. Meaning of ‘Holding Company’: Holding company means a company having one or more subsidiaries.

Who are the bank holding companies?

A Bank Holding Company (BHC) is a company that owns or controls one or more banks. The Board of Governors is responsible for regulating and supervising BHCs.

How does Section 23A protect the bank?

Section 23A prohibits a bank from initiating a “covered transaction” with an affiliate if, after the transaction, (i) the aggregate amount of the bank’s covered transactions with that particular affiliate would exceed 10 percent of the bank’s capital stock and surplus, or (ii) the aggregate amount of the bank’s covered …

What is Reg W 23B?

Section 23B provides that most transactions between a bank and its affiliates must be on terms and under circumstances, including credit standards, that are substantially the same or at least as favorable to the bank as those prevailing at the time for comparable transactions with or involving nonaffiliated companies.

Can the bank holding company Act be based on branch banking laws?

In view of the different purposes to be served by the branch banking laws and by section 4 of the Bank Holding Company Act, the Board has concluded that basing determinations under the latter solely on the basis of determinations under the former is inappropriate. Go back to Text

What happened to Section 6 of the bank holding company Act?

(b) Section 9 of the Bank Holding Company Act amendments of 1966 (Public Law 89-485, approved July 1, 1966) repealed section 6 of the Bank Holding Company Act of 1956. That rendered obsolete the Board’s interpretation of section 6 that was published in the March 1966 Federal Reserve Bulletin, page 339 (§ 225.120).

What are the statutory and regulatory provisions of the Holding Company Act?

(b) Statutory and Regulatory Provisions. (1) Under section 3 (a) of the Act, a bank holding company may not acquire direct or indirect ownership or control of more than 5 percent of the voting shares of a bank without the Board’s prior approval. ( 12 U.S.C. 1842 (a) (3)).

What is Section 4A of the bank holding company Act?

(2) The effect of sections 4 (a) (1) and 4 (c) (4) of the Bank Holding Company Act is to limit the amount of shares of a bank service corporation that a bank holding company may own or control, directly or indirectly, to the amount eligible for investment by a national bank, as previously indicated.