Bank Holding Company Definition and Examples

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A financial institution holding firm is a company entity that owns a controlling curiosity in a number of banks. Whereas a financial institution holding firm doesn’t supply banking providers straight, it manages banks that do.

Likelihood is good the monetary establishment the place you will have your checking and financial savings accounts is a subsidiary of a financial institution holding firm. Chase Financial institution, Citibank and Financial institution of America are all managed by financial institution holding corporations.

What’s a holding firm?

Sometimes called an umbrella or mother or father firm, a holding firm is a enterprise entity that holds the controlling inventory in a number of subsidiary corporations. The holding firm oversees its subsidiaries with out providing services or products of its personal. A financial institution holding firm, specifically, has a controlling curiosity in a number of banks.

Methods a holding firm may be arrange embrace as a C Company or a restricted legal responsibility firm (LLC), each of which may defend house owners from private legal responsibility. Which construction the holding firm chooses might have an effect on the way it’s taxed in addition to its capability to difficulty inventory to boost funding.

How does a financial institution holding firm work?

When a financial institution holding firm owns a subsidiary financial institution, it handles administration of the financial institution, which in flip offers monetary services to customers and companies.

Financial institution holding corporations are regulated and supervised by the Board of Governors of the Federal Reserve, even when its subsidiary banks are supervised by different entities such because the Federal Deposit Insurance coverage Corp. (FDIC).

Benefits of a financial institution holding firm

Decreased threat

A financial institution holding firm is ready to cut back general threat by spreading its monetary and authorized liabilities amongst its subsidiary banks. Likewise, a financial institution holding firm is ready to transfer property round strategically amongst its subsidiaries to extend income and cut back threat.

Elevated entry to funding

One other advantage of any such construction is elevated entry to funding, since it may be simpler for a financial institution holding firm than for a financial institution to boost capital by buying different banks, assuming shareholder debt on a tax-free foundation, and conducting share repurchases of its personal inventory.

Disadvantages of a financial institution holding firm

Prices of Federal Reserve supervision

A financial institution holding firm is confronted with the prices of assembly the accounting, record-keeping and reporting necessities imposed by the Board of Governors of the Federal Reserve.

Different regulatory prices

A financial institution holding firm with securities ruled by the Securities and Alternate Fee (SEC) could face increased prices for SEC reporting and different charges.

Financial institution holding firm examples

Many massive banks are subsidiaries of financial institution holding corporations. Actually, these entities held round 94 p.c of economic financial institution property within the U.S. in 2019, in response to the Federal Reserve.

JPMorgan Chase & Co.

Chase Financial institution is the buyer banking division of holding firm JPMorgan Chase & Co., which has $3.4 trillion in property. Almost half of U.S. households are prospects of Chase, in response to the financial institution’s web site. Chase operates greater than 4,900 branches throughout the nation.

U.S. Bancorp

U.S. Bancorp is the financial institution holding firm of U.S. Financial institution, which is the fifth largest financial institution by property in the US. The Minneapolis-based holding firm’s most up-to-date acquisition was that of MUFG Union Financial institution in December 2022.

Citigroup

Citigroup is the holding firm for Citibank, and the company has  $1.7 trillion in property and prospects in additional than 160 international locations. Primarily based in New York Metropolis, Citigroup was fashioned by the merger of Citicorp and Vacationers Group in 1998.

Financial institution holding firm vs. monetary holding firm

A monetary holding firm is a sort of financial institution holding firm that engages in monetary actions outdoors the realm of banking. These embrace service provider banking providers, insurance coverage coverage underwriting, securities dealing and giving funding recommendation. Monetary holding corporations are regulated by the Federal Reserve.

A financial institution holding firm is ready to declare itself a monetary holding firm by assembly sure pointers together with having well-capitalized subsidiary banks and receiving passable or increased rankings below the Group Reinvestment Act.

Backside line

Many banks of all sizes choose being held by a financial institution holding firm since it could improve their entry to funding and helps decrease threat. Likelihood is, your financial institution is below the umbrella of a financial institution holding firm.