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.

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