Financial Holding Company (FHC)

A financial holding company is a type of bank holding company that offers a range of nonbanking financial services.

Financial holding companies (FHC) were created by the 1999 Gramm-Leach-Bliley Act, which amended the 1956 Bank Holding Company Act to allow companies that control one or more banks – bank holding companies – to engage in nonbanking financial activities if they register as an FHC. These activities, which are not permissible for ordinary bank holding companies, include insurance underwriting, securities dealing, merchant banking, securities underwriting, and investment advisory services.

The Federal Reserve Board is responsible for supervising all bank holding companies, including FHCs. Any non-bank company that earns 85% of its gross income from financial services may elect to become an FHC but must divest itself of all nonfinancial businesses within 10 years. For a bank holding company to declare itself an FHC, it must meet certain capital and management standards.

FHCs came about shortly after the 1998 merger between Citicorp and Travelers Group, an insurance company. As a bank holding company, Citicorp was barred from selling insurance through a subsidiary. The chairman of Travellers told the New York Times at the time, "We have had enough discussions to believe this will not be a problem." The Fed granted a waiver allowing the merger to go through, and Bill Clinton signed the Gramm-Leach-Bliley Act into law the following year.

Goldman Sachs Group Inc. (GS) became an FHC in August 2009, following the financial crisis. Other large financial holding companies include Bank of America Corp. (BAC) and Fifth Third Bancorp (FITB).