That Which We Call a Bank: Revisiting the History of Bank Holding Company Regulation in the United States
72 Pages Posted: 7 Dec 2011
Date Written: December 7, 2011
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.
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