Bank holding companies and investment banks are distinctly different entities that serve separate purposes. A bank holding company controls or owns one or more banks. An investment bank serves as agent or underwriter that is an intermediary between people who invest in securities and companies that issue securities.
Bank Holding Companies
Bank holding companies governance is under Federal Deposit Insurance Corp. (FDIC) Act 6000. The act has a lengthy definition of bank holding company, but the main point is that a bank holding company exerts control over one or more banks. The act does restrict thrift and state-chartered banks from acting as bank holding companies.
The name investment bank is a bit misleading in that the company is not typically a bank that provides retail banking services to the public. Investment bankers are investment brokers who deal with merger and acquisitions, in addition to securities underwriting. Typical clients for investment banks are institutions and consumers seeking use of an investment banker for brokerage services.
During the economic downturn of 2008, many investment banks suffered tremendous financial setbacks. This caused investment banks such as Goldman Sachs and Morgan Stanley to convert from investment banks to bank holding companies. Investment banks are not subject to strict regulatory requirements that apply to bank holding companies, and can make risky investments with little capital on hand. Bank holding companies are restricted with regards to the type of debt and risk the company can have, and investment banks converting to bank holding companies did so to have access to federal funding.
Bank holding companies are subject to many levels of government regulation, including the FDIC and the Office of the Comptroller of the Currency (OCC). Investment banks prior to 2008 received Securities and Exchange Commission oversight, but the SEC received severe criticism not properly monitoring investment banks and ended the program. Investment banks are still required to file regular financial reports with the SEC.
- National Information Center: All Institution Types Defined
- FDIC: FDIC Law, Regulations, Related Acts
- The Free Dictionary: Investment Bank
- The Free Dictionary: Bank Holding Company
- ProPublica: Why is Everyone Becoming a Bank Holding Company? It’s All About the Benjamins; Kristin Jones, Nov 12 2008
- Office of the Comptroller of the Currency: ABout the OCC
Mary Frazier began writing in 2011 for various websites and has over 20 years of experience as a bank vice president and senior trust officer. Frazier is a Certified Trust and Financial Advisor, holds a Bachelor of Arts in economics from the University of North Florida and holds a Master of Science in finance from the College for Financial Planning.