Bank holding company

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A bank holding company is a company that controls one or more banks, but does not necessarily engage in banking itself. [1] The compound bancorp (banc/bank + corp[oration] ) is often used to refer to these companies as well.

A holding company is a company that owns other companies' outstanding stock. A holding company usually does not produce goods or services itself; rather, its purpose is to own shares of other companies to form a corporate group. Holding companies allow the reduction of risk for the owners and can allow the ownership and control of a number of different companies.

Bank financial institution

A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. Most nations have institutionalized a system known as fractional reserve banking under which banks hold liquid assets equal to only a portion of their current liabilities. In addition to other regulations intended to ensure liquidity, banks are generally subject to minimum capital requirements based on an international set of capital standards, known as the Basel Accords.

In linguistics, a compound is a lexeme that consists of more than one stem. Compounding, composition or nominal composition is the process of word formation that creates compound lexemes. That is, in familiar terms, compounding occurs when two or more words or signs are joined to make one longer word or sign. The meaning of the compound may be similar to or different from the meaning of its components in isolation. The component stems of a compound may be of the same part of speech—as in the case of the English word footpath, composed of the two nouns foot and path—or they may belong to different parts of speech, as in the case of the English word blackbird, composed of the adjective black and the noun bird. With very few exceptions, English compound words are stressed on their first component stem.

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United States

In the United States, a bank holding company, as provided by the Bank Holding Company Act of 1956 (12 U.S.C.   § 1841(a)(2)(A) et seq. ), is broadly defined as "any company that has control over a bank". [2] All bank holding companies in the US are required to register with the Board of Governors of the Federal Reserve System.

Title 12 of the United States Code outlines the role of Banks and Banking in the United States Code.

Regulation

The Federal Reserve Board of Governors, under Regulation Y ( 12 C.F.R. 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 Office of the Comptroller of the Currency or the Federal Deposit Insurance Corporation.

Federal Reserve Board of Governors governing body of the Federal Reserve System

The Board of Governors of the Federal Reserve System, commonly known as the Federal Reserve Board, is the main governing body of the Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping implement the monetary policy of the United States. Governors are appointed by the President of the United States and confirmed by the Senate for staggered 14-year terms.

CFR Title 12 - Banks and Banking is one of fifty titles comprising the United States Code of Federal Regulations (CFR), containing the principal set of rules and regulations issued by federal agencies regarding banks and banking. It is available in digital and printed form, and can be referenced online using the Electronic Code of Federal Regulations (e-CFR).

Mergers and acquisitions transactions in which the ownership of companies, other business organizations or their operating units are transferred or combined

Mergers and acquisitions (M&A) are transactions in which the ownership of companies, other business organizations, or their operating units are transferred or consolidated with other entities. As an aspect of strategic management, M&A can allow enterprises to grow or downsize, and change the nature of their business or competitive position.

Bank holding company status

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 its own stock.

A shareholder is an individual or institution, including a corporation,that legally owns one or more shares of stock in a public or private corporation. Shareholders may be referred to as members of a corporation. Legally, a person is not a shareholder in a corporation until their name and other details are entered in the corporation‘s register of shareholders or members. A beneficial shareholder is the person that has the economic benefit of ownership of the shares, while a nominee shareholder is the person who is on the corporation’s register as the owner while being in fact acting for the benefit and at the direction of the beneficiary, whether disclosed or not.

Stock financial instrument

The stock of a corporation is all of the shares into which ownership of the corporation is divided. In American English, the shares are commonly called as stocks. A single share of the stock represents fractional ownership of the corporation in proportion to the total number of shares. This typically entitles the stockholder to that fraction of the company's earnings, proceeds from liquidation of assets, or voting power, often dividing these up in proportion to the amount of money each stockholder has invested. Not all stock is necessarily equal, as certain classes of stock may be issued for example without voting rights, with enhanced voting rights, or with a certain priority to receive profits or liquidation proceeds before or after other classes of shareholders.

Share repurchase is the re-acquisition by a company of its own stock. It represents a more flexible way of returning money to shareholders.

The downside includes responding to additional regulatory authorities, especially if there are more than 2,000 shareholders (note: prior to the Jobs Act or Jumpstart Our Business Startups Act, the shareholder number was 300), 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.

Jumpstart Our Business Startups Act

The Jumpstart Our Business Startups Act, or JOBS Act, is a law intended to encourage funding of small businesses in the United States by easing many of the country's securities regulations. It passed with bipartisan support, and was signed into law by President Barack Obama on April 5, 2012. Title III, also known as the CROWDFUND Act, has drawn the most public attention because it creates a way for companies to use crowdfunding to issue securities, something that was not previously permitted. Title II went into effect on September 23, 2013. On October 30, 2015, the SEC adopted final rules allowing Title III equity crowdfunding. These rules went into effect on May 16, 2016. Other titles of the Act had previously become effective in the years since the Act's passage.

2008 credit crisis

As a result of the global financial crisis of 2008, many traditional investment banks and finance corporations such as Goldman Sachs, Morgan Stanley, [3] American Express, CIT Group and GMAC (now Ally Financial) [4] successfully converted to bank holding companies in order to gain access to liquidity and funding.

Goldman Sachs U.S. investment bank

The Goldman Sachs Group, Inc., is an American multinational investment bank and financial services company headquartered in New York City. It offers services in investment management, securities, asset management, prime brokerage, and securities underwriting.

Morgan Stanley U.S investment bank

Morgan Stanley is an American multinational investment bank and financial services company headquartered at 1585 Broadway in the Morgan Stanley Building, Midtown Manhattan, New York City. With offices in more than 42 countries and more than 55,000 employees, the firm's clients include corporations, governments, institutions and individuals. Morgan Stanley ranked No. 67 in the 2018 Fortune 500 list of the largest United States corporations by total revenue.

American Express American multinational financial services corporation

The American Express Company, also known as Amex, is an American multinational financial services corporation headquartered in Three World Financial Center in New York City. The company was founded in 1850 and is one of the 30 components of the Dow Jones Industrial Average. The company is best known for its charge card, credit card, and traveler's cheque businesses.

See also

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Citigroup American multinational investment bank and financial services corporation

Citigroup Inc. or Citi is an American multinational investment bank and financial services corporation headquartered in New York City. The company was formed by the merger of banking giant Citicorp and financial conglomerate Travelers Group in 1998; Travelers was subsequently spun off from the company in 2002. Citigroup owns Citicorp, the holding company for Citibank, as well as several international subsidiaries.

Financial regulation

Financial regulation is a form of regulation or supervision, which subjects financial institutions to certain requirements, restrictions and guidelines, aiming to maintain the integrity of the financial system. This may be handled by either a government or non-government organization. Financial regulation has also influenced the structure of banking sectors by increasing the variety of financial products available. Financial regulation forms one of three legal categories which constitutes the content of financial law, the other two being market practices, case law.

A banking license is a legal prerequisite for a financial institution that wants to carry on a banking business. Under the laws of most jurisdictions, a business is not permitted to carry words like a bank, insurance, national in their name, unless it holds a corresponding license. Depending to their banking regulations, jurisdictions may offer different types of banking licenses, such as

The Edge Act is a 1919 amendment to the United States Federal Reserve Act of 1913, codified at 12 U.S.C. §§ 611631, which allows national banks to engage in international banking through subsidiaries chartered by the Board of Governors of the Federal Reserve System. The act is named after Walter Evans Edge, a U.S. Senator from New Jersey who sponsored the original legislation for these types of subsidiaries. The impetus for the act was to give U.S. firms more flexibility to compete with foreign firms.

Bank regulation is a form of government regulation which subjects banks to certain requirements, restrictions and guidelines, designed to create market transparency between banking institutions and the individuals and corporations with whom they conduct business, among other things. As regulation focusing on key actors in the financial markets, it forms one of the three components of financial law, the other two being case law and self-regulating market practices.

A capital requirement is the amount of capital a bank or other financial institution has to hold as required by its financial regulator. This is usually expressed as a capital adequacy ratio of equity that must be held as a percentage of risk-weighted assets. These requirements are put into place to ensure that these institutions do not take on excess leverage and become insolvent. Capital requirements govern the ratio of equity to debt, recorded on the liabilities and equity side of a firm's balance sheet. They should not be confused with reserve requirements, which govern the assets side of a bank's balance sheet—in particular, the proportion of its assets it must hold in cash or highly-liquid assets.

Mitsubishi UFJ Financial Group

Mitsubishi UFJ Financial Group, Inc. is a Japanese bank holding / financial services company headquartered in Chiyoda, Tokyo, Japan.

Bank Holding Company Act

The Bank Holding Company Act of 1956 is a United States Act of Congress that regulates the actions of bank holding companies.

Bank regulation in the United States is highly fragmented compared with other G10 countries, where most countries have only one bank regulator. In the U.S., banking is regulated at both the federal and state level. Depending on the type of charter a banking organization has and on its organizational structure, it may be subject to numerous federal and state banking regulations. Apart from the bank regulatory agencies the U.S. maintains separate securities, commodities, and insurance regulatory agencies at the federal and state level, unlike Japan and the United Kingdom. Bank examiners are generally employed to supervise banks and to ensure compliance with regulations.

Regulatory responses to the subprime crisis addresses various actions taken by governments around the world to address the effects of the subprime mortgage crisis.

Dodd–Frank Wall Street Reform and Consumer Protection Act Regulatory act implemented by the Obama Administration after the 2008 Financial Crisis.

The Dodd–Frank Wall Street Reform and Consumer Protection Act was signed into United States federal law by US President Barack Obama on July 21, 2010. Passed in response to the 2008 global financial crisis, the Act brought the most significant changes to financial regulation in the nation since the regulatory reform that came following the Great Recession. It made changes in the American financial regulatory environment affecting all federal financial regulatory agencies and almost every part of the nation's financial services industry.

Structure of the Federal Reserve System

The Federal Reserve System is composed of five parts:

  1. The presidentially appointed Board of Governors, an independent federal government agency located in Washington, D.C.
  2. The Federal Open Market Committee (FOMC), composed of the seven members of the Federal Reserve Board and five of the twelve Federal Reserve Bank presidents, which oversees open market operations, the principal tool of U.S. monetary policy.
  3. Twelve regional Federal Reserve Banks located in major cities throughout the nation, which divide the nation into twelve Federal Reserve districts. The Federal Reserve Banks act as fiscal agents for the U.S. Treasury, and each has its own nine-member board of directors.
  4. Numerous other private U.S. member banks, which own required amounts of non-transferable stock in their regional Federal Reserve Banks.
  5. Various advisory councils.

Basel III is a global, voluntary regulatory framework on bank capital adequacy, stress testing, and market liquidity risk. This third installment of the Basel Accords was developed in response to the deficiencies in financial regulation revealed by the financial crisis of 2007–08. It is intended to strengthen bank capital requirements by increasing bank liquidity and decreasing bank leverage.

Financial Stability Oversight Council

The Financial Stability Oversight Council (FSOC) is a United States federal government organization, established by Title I of the Dodd–Frank Wall Street Reform and Consumer Protection Act, which was signed into law by President Barack Obama on July 21, 2010. The Office of Financial Research is intended to provide support to the council.

This article details the history of banking in the United States. Banking in the United States is regulated by both the federal and state governments.

ICE Clear Credit LLC, a Delaware limited liability company, is a Derivatives Clearing Organisation (DCO) previously known as ICE Trust US LLC which was launched in March 2009. ICE offers trade execution and processing for the credit derivatives markets through Creditex and clearing through ICE Trust™. ICE Clear Credit LLC operates as a central counterparty (CCP) and clearinghouse for credit default swap (CDS) transactions conducted by its participants. ICE Clear Credit LLC is a subsidiary of IntercontinentalExchange (ICE). ICE Clear Credit LLC is a wholly owned subsidiary of ICE US Holding Company LP which is "organized under the law of the Cayman Islands but has consented to the jurisdiction of United States courts and government agencies with respect to matters arising out of federal banking laws."

This article is about the decline of the effect of Glass–Steagall: legislation, limits, and loopholes.

References

  1. O'Sullivan, Arthur; Sheffrin, Steven M. (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. p. 421. ISBN   0-13-063085-3.
  2. "Bank Holding Company Act". FDIC.
  3. "Morgan Stanley Granted Federal Bank Holding Company Status By U.S. Federal Reserve Board of Governors".
  4. "AFP: Fed approves GMAC bank request in boost for GM". Associated Press.