What is the holding company?
Banking holding company is an entity that has ownership and final inspection over one or more banking institutions. Ownership may be direct or indirect and is held by a corporation or other type of business. In the United States, the 1956 holding company Act set out specific instructions for what represents a banking holding company, while the federal reserve system is responsible for evaluating the state of any entity claiming to be this type of holding company.
According to the regulations stipulated in this Act, the entity seeking to meet several criteria for the status of the Bank holding company. This includes ownership and control of at least twenty -five percent of shares issued by bank or banks and the ability to vote on matters concerning the function of the institution. The application, which is to be recognized as a holding company, must be approved by the Federal Reserve Council of Governors.
There are a number of reasons why it can be createdto the holding company. One of the more common reasons is to manage effective and proper management of banking mergers. The holding company serves as means that make separate entities systematically merged into a single business entity, and make sure it will remain in the capital standards specified by the Federal Reserve. Upon completion of the merger process, the holding company can be dissolved or continued to operate for a certain period of time, depending on the desires of the Council that manages society itself.
Banks and other credit institutions sometimes restructure holding companies during a period of economic decline, such as recession. This approach allows banks to have greater flexibility in terms of financing and liquidity. Smaller banks can also look for the status of banking holding companies for the same reasons, allowing them to live during a heavier economic period. Some may decide to restructure again as soon as the financial krIZE passes or stay like a bank holding company for a longer period of time.
It is not uncommon for the bank to restructure into a banking holding company as a means of dealing with corporate robbers trying to take an enemy takeover of the institution. This approach can effectively prevent Raider from gaining a control interest in a bank or a group of banks and to allow institutions to continue working as always. As with those banks that choose this route as a way to deal with the recession, banks that are gathering under an umbrella of the holding company can also remain as a holding company until they see value in the agreement.