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.

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.

Are bank holding companies exempt?

Any company that was on January 4, 1977, both a bank holding company and a labor, agricultural, or horticultural organization exempt from taxation under section 501 of the Internal Revenue Code (26 U.S.C. 501(c)).

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 a bank holding company 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.

Why banks have holding companies?

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.

What is the benefit of a bank holding company?

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 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 …

What is the difference between affiliate and subsidiary?

Key Takeaways. A subsidiary is a company whose parent company is a majority shareholder that owns more than 50% of all the subsidiary company’s shares. An affiliate is used to describe a company with a parent company that possesses 20 to 50% ownership of the affiliate.

Why are banks owned by holding companies?

What can bank holding companies invest in?

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.

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.

Can holding companies get loans?

A holding company that has financial strength can often obtain loans for a lower interest rate than its operating companies could themselves, particularly where the business in need of capital is a startup or other venture considered a credit risk.

What is the difference between a bank holding company 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.

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 is a bank affiliate?

Bank Affiliate means a Person engaged primarily in the business of commercial banking and that is a Subsidiary of a Bank or of a Person of which a Bank is a Subsidiary.

Is a 50 shareholding a subsidiary?

If the parent simply owns a controlling interest in the subsidiary (50% or more), then the company is a subsidiary. If the parent owns less than 50% of another company, then that company is simply an associate of the parent company and not a subsidiary.