What is a bank holding company? Definition and examples

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A bank holding company is a corporate entity that owns a controlling interest in one or more banks. While a bank holding company doesn’t offer banking services directly, it manages banks that do.

Chances are good the financial institution where you have your checking and savings accounts is a subsidiary of a bank holding company. Chase Bank, Citibank and Bank of America are all controlled by bank holding companies.

What is a holding company?

Often referred to as an umbrella or parent company, a holding company is a business entity that holds the controlling stock in one or more subsidiary companies. The holding company oversees its subsidiaries without offering products or services of its own. A bank holding company, in particular, has a controlling interest in one or more banks.

Ways a holding company can be set up include as a C Corporation or a limited liability company (LLC), both of which can protect owners from personal liability. Which structure the holding company chooses could affect how it’s taxed as well as its ability to issue stock to raise funding.

How does a bank holding company work?

When a bank holding company owns a subsidiary bank, it handles management of the bank, which in turn provides financial products and services to consumers and businesses.

Bank holding companies are regulated and supervised by the Board of Governors of the Federal Reserve, even if its subsidiary banks are supervised by other entities such as the Federal Deposit Insurance Corp. (FDIC).

Advantages of a bank holding company

Reduced risk

A bank holding company is able to reduce overall risk by spreading its financial and legal liabilities among its subsidiary banks. Likewise, a bank holding company is able to move assets around strategically among its subsidiaries to increase profits and reduce risk.

Increased access to funding

Another benefit of this type of structure is increased access to funding, since it can be easier for a bank holding company than for a bank to raise capital by acquiring other banks, assuming shareholder debt on a tax-free basis, and conducting share repurchases of its own stock.

Disadvantages of a bank holding company

Costs of Federal Reserve supervision

A bank holding company is faced with the costs of meeting the accounting, record-keeping and reporting requirements imposed by the Board of Governors of the Federal Reserve.

Other regulatory costs

A bank holding company with securities governed by the Securities and Exchange Commission (SEC) may face higher costs for SEC reporting and other fees.

Bank holding company examples

Many large banks are subsidiaries of bank holding companies. In fact, these entities held around 94 percent of commercial bank assets in the U.S. in 2019, according to the Federal Reserve.

JPMorgan Chase & Co.

Chase Bank is the consumer banking division of holding company JPMorgan Chase & Co., which has $3.4 trillion in assets. Nearly half of U.S. households are customers of Chase, according to the bank’s website. Chase operates more than 4,900 branches across the country.

U.S. Bancorp

U.S. Bancorp is the bank holding company of U.S. Bank, which is the fifth largest bank by assets in the United States. The Minneapolis-based holding company’s most recent acquisition was that of MUFG Union Bank in December 2022.

Citigroup

Citigroup is the holding company for Citibank, and the corporation has  $1.7 trillion in assets and customers in more than 160 countries. Based in New York City, Citigroup was formed by the merger of Citicorp and Travelers Group in 1998.

Bank holding company vs. financial holding company

A financial holding company is a type of bank holding company that engages in financial activities outside the realm of banking. These include merchant banking services, insurance policy underwriting, securities dealing and giving investment advice. Financial holding companies are regulated by the Federal Reserve.

A bank holding company is able to declare itself a financial holding company by meeting certain guidelines including having well-capitalized subsidiary banks and receiving satisfactory or higher ratings under the Community Reinvestment Act.

Bottom line

Many banks of all sizes prefer being held by a bank holding company since it may increase their access to funding and helps minimize risk. Chances are, your bank is under the umbrella of a bank holding company.