By Andrew A. Turner, J.D.
“Bank holding companies may have outlived their practical business value in our financial system and may, in fact, be obsolete,” according to First Deputy Comptroller of the Currency Keith Noreika. While bank holding companies may continue to serve a purpose for large companies that conduct complex activities, he sees less value for more traditional banking firms.
Speaking before the American Enterprise Institute on the day of his resignation from government service after serving as Acting Comptroller until a permanent agency head was in place, Noreika said that the holding company structure is not necessary as a tool to manage systemic risk. Evolving regulatory changes have diminished the value of bank holding companies, while costs have increased with duplicative regulation, in his opinion.
Noreika gave the case of the Bank of the Ozarks as an example of why smaller banking companies are eliminating their holding companies. Bank of the Ozarks, a state non-member bank, merged its holding company into the bank citing benefits through consolidated governance and organizational structure.
Noting that for most bank holding companies, the bank usually makes up the vast majority of the company’s assets and activities, Noreika observed that “many community and regional banking organizations are realizing that the extra and duplicative costs of maintaining a holding company make little business and economic sense.” In addition to the trend limiting bank holding companies to activities that are financial in nature, he also pointed to costly prudential requirements under the Dodd-Frank Act as impediments to bank holding company flexibility.
Noreika contended that Congress could reduce regulatory redundancy by giving the regulator of the depository institution sole examination and enforcement authority when a depository institution constitutes a substantial portion of its holding company’s assets. Another suggested approach to the problem of multiple regulators would be to eliminate statutory impediments for firms that want to operate without a holding company, such as modernizing corporate governance requirements for national banks.
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