Interesting update to this post: Zions is moving to shed its holding company. Will more banks follow suit? Will it spur Congress to increase the $50 billion SIFI threshold?
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Steve Kinner
Promontory Interfinancial Network
Arlington VA
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Original Message:
Sent: 11-15-2017 15:57
From: Barb Rehm
Subject: Thinking About Ditching Your Holding Company?
A Nov. 9 Wall Street Journal headline --"How Some Small Banks are Firing the Fed" – was intriguing.
"This is [bankers] taking regulatory relief into their own hands," one lawyer told the newspaper.
That sounds pretty great. Bankers getting out from under Federal Reserve oversight by dumping their holding companies, cutting costs, and making their regulatory lives simpler.
But how many banks could actually benefit from this move?
Most banks either need a holding company or the burden of having one is negligible. And that's why the holding company is, and likely will remain, the dominant organizational structure for banks in the U.S. Roughly 75% of banks use a holding company, and those banks control 99% of the industry's assets.
Why is that? Because our largest banks don't have much choice. Unless they want to give up offering a wide range of products and services, pare back investments, and make other operational changes, federal law requires them to use a holding company. And our smallest banks, those with less than $1 billion in assets, are subject to a lighter version of holding company regulation. (The Fed adopted that policy in 1980, and doubled the size of banks eligible for the lighter touch in in 2015 as part of its regulatory relief efforts.)
Of the 5,787 banks operating in the U.S. on June 30, 2017, more than 5,000 held less than $1 billion in assets each, according to the FDIC. Not all of these banks use a holding company, of course, but those that do, aren't paying huge fees or facing big supervisory burdens.
That leaves some 750 banks that could streamline their regulatory load if they ditched their holding company. But roughly 120 of these are doing some activity or issuing some kind of debt that requires them to use a holding company.
That leaves about 630 institutions that could make a case for "firing the Fed" and winning the reg relief game with one fewer regulator, simpler governance and accounting, and lower costs.
How about your bank? Are you considering giving up your holding company? Why or why not?
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Barbara Rehm
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