Bank Holding Company
(BHC)
Description
What is a business that owns banks?
Many individuals may feel that the phrase ‘Bank Holding Company’ is tough or technical. It is not so tough to comprehend if broken down. This article will inform you about what a bank holding company is, how it functions, and why it’s important in finance.
Obtaining the Fundamentals
A Bank Holding Company (BHC): a business that owns or controls one or more banks. It does not “do business” as a bank; it merely watches and runs them.
One may refer to it as a mother institution that manages one or more banks, somewhat akin to a mom overseeing her offspring. Banks do basic, day-to-day things related to banking: take deposits and lend money. It’s the holding company that’s above them.
Global Bank is owned by this company. It does not lend money or take in deposits, but Global Bank does.
In this case, Global Finance Ltd. is the parent company for the bank, and Global Bank is the subsidiary it maintains and operates.
Many people confuse bank holding companies with commercial banks; bank holding companies are a classic example of ownership in banking by a nonbank corporation.
There are literally hundreds of bank-holding companies
1. Single ownership
Such an individual has only one bank; an investment company with only one bank generally has more than one small to medium-sized banks.
2. Having More Than One Bank
This one has two or more, where typically large financial groups work when they go to another city or country.
What do banks accomplish by establishing holding companies?
Banks established holding companies for some reasons: Business Flexibility Other than allowing banking, they are not limited to renting investing and getting insurance. Easy Growth When a bank wants to grow fast, a holding company can help it become easy to buy or start other banks. Better Organisation A holding company can manage the decisions, finances, and operations better than all banks owned by it.
Raising more cash
They can raise more money from the stock, by selling shares or from the public through borrowing.
What Is It That Bank Holding Companies Do?
Bank holding companies may:
Buy and operate banks
Supervise bank operations
Control wisely and
Inject its banks with capital
They may sometimes acquire nonbanking businesses.
They don’t do anything like accept regular deposits or make loans which most people do every day, for it is the banks owned that do such jobs.
What is the rule for it?
Companies holding banks are regulated by the central government, usually through their central banks.
In the US, it’s the Federal Reserve that regulates bank holding companies.
The RBI ensures that Indian holding corporations comply and do not become insolvent.
This rule is to keep safe the money that people have and the system of finance.
Bank Holding Company vs. Bank
Let’s see how they are different:
A bank holding corporation is a type of entity that extends banking services. Yes No
Yes, it accepts deposits.
Exercise controlling powers over other banksNo, yes
Central Banks like the RBI and Groups others Yes giving because it does give out loans. Gets money from the market Sometimes a lot
ICICI Bank Ltd. is a bank with a holding company structure for its subsidiaries, such as ICICI Prudential and ICICI Securities.
SBI (State Bank of India), India’s largest, is considering a holding company model to better manage its insurance and fund businesses.
Benefits of Bank Holding Companies:
They provide the organization to monitor a plethora of banks at once.
Allowing businesses to expand into different sectors of the economy helps. Provide investors with more access and spread the risk out among many different companies.
Issues and risks
It can be challenging to manage structure.
There are too many rules that businesses have to follow because they are strictly monitored by the government. Failure to successfully control the financial problems in one unit will further affect the whole business entity.
A bank holding company is an organization that owns and operates one or more banks. Although it does not extend credit or receive deposits from the public, it represents one of the crucial entities in the provision of banking services since it manages, expands, and perpetuates order in the entire business.
Not just students or bankers should know this principle; anyone who is interested in knowing about the financial world behind the scenes should.
Today holding companies for banks, large or small, are an integral part of the world’s banking system.