Multibank Holding Company
What Is a Multibank Holding Company?
A multibank holding company is a parent company that possesses or controls at least two commercial banks. As a result of their conglomerate status, they are subject to additional regulations and oversight than standalone banks, and yet likewise have more options for raising capital due to their larger size and greater diversity.
A multibank holding company might be stood out from a one-bank holding company, which controls 25% or a greater amount of the voting rights in a single bank.
How Multibank Holding Companies Work
The rise of multibank holding companies has a lot of to do with geographic diversification and the impact of regional economics. By and large, commercial banks, like savings and loans and community banks, served the geographic area quickly encompassing the physical location of the bank itself. If the organizations in the encompassing area all failed in large enough numbers simultaneously, the banks wouldn't have the option to remain open in light of the fact that a large portion of their loan portfolio would default at the same time.
This could occur, for instance, in the event that a specific region depended vigorously on industrial manufacturing where most organizations are factories, in the event that the manufacturing sector endures a shot, these organizations will be generally negatively impacted in much the same way.
This can likewise be due to a concentration of agricultural enterprises. During the Great Depression, for instance, the disappointment of large numbers of ranches brought about many banks across the United States shutting.
Multibank holding companies give a level of diversification, as a company with banks across several unique networks in several different geographic areas apparently conveys less risk than a company with just a single bank in one concentrated area. The creation of auxiliaries permitted individual banks to join administrative operations, which diminished costs while additionally permitting them to tap into their holding company's assets in times of crisis.
Starting around 2021, the largest multi-bank holding company in the U.S. is JP Morgan Chase, trailed by Bank of America. Citigroup, and Wells Fargo.
Regulation and Multi-Bank Holding Companies
Multibank holding companies are represented by the Bank Holding Company Act of 1956 and its amendments. The Act was intended to check the expansion of banks and to guarantee that they had separate banking and non-banking capabilities.
State banking laws influence whether multibank holding companies are probably going to set up in a specific state. Unit banking states will generally have more multibank holding companies since the law prohibits bank branching, while branch and restricted branch banking states will more often than not have more one-bank holding companies. Banks that are individuals from the National Association (N.A.) can have bank locations in several states and may even operate internationally.
Features
- While subject to greater regulation, multi-bank holding companies commonly find it more straightforward to raise capital and have the benefit of diversification across types of borrowers and geographic regions.
- Multi-bank holding companies are subject to regulation from the Bank Holding Company Act of 1956 to deter concentration and prevent hostile to seriousness.
- A multi-bank holding company is a corporate structure where the parent company claims several bank auxiliaries.
