Financial Holding Company - Explained
What is a Financial Holding Company?
Written by J. Mance Gordon
Updated at April 18th, 2022
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What is a Financial Holding Company?
A financial holding company (FHC) is a type of corporation that engages in banking-related activities but offers non-banking financial services. A bank holding company (a company that controls two or more banks) can register as an FHC if it wants to engage in nonbanking financial activities. Although an FHC might not directly deal with banking activities it offers services such as insurance products, sale investment securities and others.
Back to:BANKING, LENDING, & CREDIT INDUSTRY
How Does a Financial Holding Company Work?
Financial holding companies (FHCs) are under the regulations of the Federal Reserve Board, the board also supervises the activities of bank holding companies. The Gramm-Leach-Bliley Act of 1999 established FHCs. This act was an amendment of the Bank Holding Company Act of 1956 that permits bank holding companies to offer financial services if they register as FHCs. The financial services or non-banking activities that FHCs can engage in include;
- Sales of insurance products
- Merchant banking
- Underwriting of securities and securities trade.
- Financial and investment advisory services.
It is important to know that a banking holding company that did not register as a financial holding company (FHC) cannot engage in financial activities that FHCs can engage in. However, a non-bank holding company can also qualify to become an FHC if proceeds from financial services and other non-bank activities make up 85% of the company's gross income. Generally, there are certain criteria and requirements that a bank holding company must meet before it becomes an FHC.