How to Start a Bank Holding Company
A Bank Holding Company (BHC) "holds" a controlling interest in one or more banks, other BHCs or non-banking financial service entities. The Bank Holding Company Act of 1956, as amended in 1999, gives the Federal Reserve licensing and supervisory authority over all BHCs in the United States. The Federal Reserve's Regulation Y implements the law and spells out how to apply for a BHC license.
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Things You'll Need
- Investors
- Capital
- Management
- Business plan
- Corporate entity
- Legal adviser
- Acquisition target
Instructions
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Assuming you already own either a bank or non-bank business or are in the final stages of forming one or the other, and have sufficient capital for the purpose, once you have selected the bank or financial services entity or entities you wish to acquire, you need to file your proposal for the new BHC with the Federal Reserve Bank in your district.
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Before filing, review your plan against the criteria in Regulation Y, Section 225.13 Your proposed BHC cannot lessen competition and must meet the community's needs. Its financial condition and future prospects, managerial resources and track record must conform to the Board's regulatory standards.
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Publish notices of your proposal in the prescribed format (see References) in newspapers of general circulation in the communities served by your BHCs head office and each bank to be acquired. Publish it no earlier than 15 calendar days prior to the date the Federal Reserve Bank receives the application and no later than seven calendar days after the filing date. Allow public comment for at least 30 days after the date of publication.
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Review Reg Y, Paragraphs 225.11 and 225.17 for guidance in deciding if your proposal requires prior approval from the Fed before proceeding with your transaction, or if it only requires you to give notice, meaning that you can proceed without waiting for formal approval.
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From the Federal Reserve website, download Form FR Y-3 "Application to Become a Bank Holding Company..." if your proposal requires prior approval, or FR Y-3n "Notification to Become...." if notice only is required. Complete, sign and submit the appropriate form within the required time frame after the public notice appears. A publisher's affidavit from each of the newspapers in which the notice appeared must accompany the form.
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After filing, respond to any requests for information, resolve objections or appeal a denial, or, if approved, begin operating your new Bank Holding Company. The Fed staff has 30 days to complete action on your application, unless it requires a vote by the entire Federal Reserve Board, which can take an additional 60 days.
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Tips & Warnings
You can recognize a BHC from the "bancorp" or "bancshares" in the name, for example, "US Bancorp" or "First United Bancshares".
Weigh the pros and cons of establishing a BHC carefully. Cons include additional cost and complexity in the start-up phase; ongoing costs related to Federal Reserve Bank supervision and reporting requirements; the need to raise working capital for the BHC; and potential requirement to register with SEC.
References
Resources
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