One-Bank Holding Company

A one-bank holding company is a corporation that holds at least a quarter of the voting stock of a commercial bank. One-bank holding companies led to the creation of leveraged bank holding companies. These entities are under the supervision of the United States Federal Reserve (or, the Fed).

One-bank holding companies own 25% or more of a bank’s voting stock. Voting shares allow a stockholder the right to vote on matters of corporate policy, as well as who will compose the board of directors. (For companies, voting shares and common shares are often synonymous, while other classes of shares, such as preferred stock, sometimes do not allow for voting rights.)

One-bank holding companies began to appear in the late 1960s. The leveraged entities that subsequently emerged out of them helped free up many commercial banks from their dependence on customer deposits for making loans.

Bank holding companies were allowed to issue commercial paper in capital markets. Commercial paper is usually a means for a corporation to obtain capital quickly to finance its accounts receivable, inventories, and meet its short-term liabilities. Commercial paper is a short-term debt instrument, rarely maturing after 270 days. Instead of bearing interest in the traditional sense, commercial paper is usually issued at a discount from face value.

Holding companies exist outside of the realm of banks. For example, some corporations have been formed simply to hold assets or several subsidiaries (not produce goods or services). While holding companies cannot run day-to-day operations, they are able to exercise control over management and company policies. More specifically, they can hire and fire managers and evaluate the performance of their subsidiaries’ businesses.

Holding company assets can include limited liability companies or partnerships, real estate, patent trademarks, stocks, bonds and more. They are partially protected from financial losses and can structure themselves to spread tax, financial and legal liabilities among different subsidiaries to reduce risk.

Perhaps the most famous holding company is Berkshire Hathaway. Run by famed investor and entrepreneur Warren Buffet, Berkshire Hathaway is a holding company for numerous businesses, including (as of 2017) GEICO, Dairy Queen, BNSF Railway, Lubrizol, Fruit of the Loom, and Helzberg Diamonds, among others. In addition, Berkshire Hathaway has a 38.6% stake in Pilot Flying, a 26.7% stake in the Kraft Heinz Company, a ~17% minority holding in American Express, and more.