Umbrella Supervision and Coordination with Other
Functional Regulators
In addition to owning banks, bank holding companies also may own
broker-dealers engaged in securities activities or insurance companies. Indeed,
one of the primary purposes of the Gramm-Leach-Bliley Act (GLB Act), enacted in
1999, was to allow banks, securities broker-dealers, and insurance companies to
affiliate with each other through the bank holding company structure. To take
advantage of the expanded affiliations permitted by the GLB Act, a bank holding
company must meet certain capital, managerial, and other requirements and must
elect to become a “financial holding company.” When a bank holding company or
financial holding company owns a subsidiary broker-dealer or insurance company,
the Federal Reserve seeks to coordinate its supervisory responsibilities with
those of the subsidiary’s functional regulator which is the Securities and Exchange
Commission (SEC) in the case of a broker-dealer and the state insurance
authorities in the case of an insurance company.
The Federal Reserve’s role as the supervisor of a bank holding company
or financial holding company is to review and assess the consolidated
organization’s operations, risk management systems, and capital adequacy to
ensure that the holding company and its nonbank subsidiaries do not threaten the
viability of the company’s depository institutions. In this role, the Federal
Reserve serves as the “umbrella supervisor” of the consolidated organization.
In fulfilling this role, the Federal Reserve relies to the fullest extent
possible on information and analysis provided by the appropriate supervisory
authority of the company’s bank, securities, or insurance subsidiaries.