That Which We Call a Bank: Revisiting the History of Bank Holding Company Regulation in the United States

Abstract:     
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) has elevated the importance of the Bank Holding Company Act of 1956 (the “BHCA”) – the key statute governing activities and affiliations of U.S. bank holding companies (“BHCs”) – by effectively using it as the model for regulation and supervision of all systemically important financial institutions. The BHCA regulatory regime, however, is a product of unique historical circumstances, which reflects shifting patterns in political and economic struggles and compromises. This Article examines one crucial aspect of this rich and multi-faceted history: the evolution of the BHCA definition of a “bank” and the main statutory exemptions from this definition for industrial loan companies, credit card banks, limited purpose trust companies, credit unions, and thrifts.

Despite its seemingly narrow scope, this is a fundamentally important issue. The key to becoming a BHC subject to the many activity restrictions and regulatory intrusions is control or ownership of an entity that is considered a “bank” under the BHCA. Yet, contrary to what most ordinary Americans may think, what makes an institution a “bank” is not self-evident and depends on whether the statute defines it as such. What types of financial institutions that definition includes, or excludes, has changed several times since 1956. This Article presents a brief historical account of how, why, and with what consequences Congress periodically redefined the universe of “banks” and their heavily regulated BHC-parents. The Article discusses the potential impact of the Dodd-Frank Act on the continuing practical relevance of owning or controlling a “bank,” as opposed to any other financial institution specifically exempt from that category, and reflects on some of the broader lessons of the history of the BHCA for the ongoing regulatory reform.

Number of Pages in PDF File: 72

Accepted Paper Series