Definition
The term bank holding company refers to a corporation that has controlling interest over a bank. Bank holding companies in the United States must register with the Federal Reserve.
Explanation
The Bank Holding Company Act of 1956 broadly defines a bank holding company as any corporation that has control over a bank. Once established as a bank holding company, or BHC, the company is required to register with the Federal Reserve's Board of Governors, which is responsible for regulating their activities as well as conducting inspections.
Establishing a BHC structure allows the company to gain access to additional funding as well as increase liquidity. It also provides additional flexibility with respect to raising capital, mergers and acquisitions (industry consolidation), and issuing shares of common stock. This flexibility does come at a cost, since the BHC structure requires the company to support additional administrative overhead expenses as well as an increase in regulatory scrutiny.
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