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CONVERGENCE |
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OVERVIEW
Spurred by the passage of the Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (GLB), many leading financial services companies are now doing business across sectors. Prior to GLB, competition among the various segments of the financial services industry was strictly limited by law. GLB removed many of the Depression-era barriers that restricted competition.
While the arrangement that provided the major impetus for the passage of GLB, Citigroup’s merger with Travelers Insurance Group, has been dissolved, the convergence of products and services continues to gather momentum as companies look for innovative ways to tap the robust market for financial products. Banks have tended to concentrate on distributing insurance products by buying existing agencies and brokers rather than by setting up their own agencies or purchasing insurers. For their part, insurance companies have set up thrift or banking divisions rather than buying existing banks.
GLB permits banks, securities firms and insurance companies to affiliate with each other through the financial holding company (FHC) structure. The first step in electing FHC status is to become a bank holding company (BHC), a company that owns one or more banks. BHCs must meet certain eligibility requirements in terms of capital, management and community investment to become an FHC.
GLB also allows banks owned by BHCs to expand into financial services activities by creating financial subsidiaries. The activities permitted by these subsidiaries are not as broad as those of the FHCs. For example, financial subsidiaries of banks may not engage in insurance underwriting. Before passage of GLB, BHCs could be involved in the securities business, but what they were permitted to do was strictly limited by law.
Industrial banks afford another route into banking for both financial services companies and nonfinancial businesses. These state-chartered institutions have broad banking powers and may be owned by firms outside the financial services sector, such as automakers and department stores as well as financial services businesses such as finance companies, insurers and securities firms.
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NUMBER OF FINANCIAL HOLDING COMPANIES,
2003-2007 (1)
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2003 |
2004 |
2005 |
2006 |
2007 |
| Number of domestic FHCs (2) | 612 | 600 | 591 | 599 | 597 |
| Number of foreign FHCs (3) | 32 | 36 | 38 | 44 | 43 |
| Total number of FHCs | 644 | 636 | 629 | 643 | 640 |
(1) To avoid double-counting, only the top-tier bank holding company in a multitier organization is included.
(2) Bank holding company whose ultimate parent is incorporated in the United States.
(3) Bank holding company whose ultimate parent is a foreign bank or other organization chartered outside the United States.
Source: Board of Governors of the Federal Reserve System. |
| - As of April 2008 there were 647 BHCs with financial holding company status, including 49 foreign and 598 domestic BHCs.
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