Financial Update (Second Quarter 2004)


 Deterring Money

 Surprising Effects

 Conference Eyes
 Wall Street's Future

 Guynn Discusses
 Growth, Policy

 Fed Guidance
 on Fair Banking

 Check Processing

 Mortgage Market
 Hits Record

 New Call Report
 Web Site

 Do Markets Reveal
 Their Future Activity?

 New $50 Unveiled

 Davis Joins
 Atlanta Fed Board

 Atlanta Fed Hosts
 ACH Conference

 Atlanta Fed Issues
 2003 Annual Report


 New Atlanta Fed
 Subscriber Service


 Data Bank

 Circular Letters



Gramm-Leach-Bliley’s Surprising Effects

Almost five years have passed since the Gramm-Leach-Bliley Act (GLBA) was signed into law in November 1999. GLBA significantly altered the legal framework governing the permissible affiliations and activities of U.S. banking organizations. Among other things, GLBA created a two-way street that not only allows bank holding companies to acquire full-service securities firms, insurance companies, and insurance agencies through a financial holding company structure but also allows securities firms and insurance companies to acquire banks and thereby become a financial holding company.

GLBA executive summary
Financial holding companies by district
Reg Y provisions regarding financial holding companies

For a bank holding company to become a financial holding company and take advantage of the new powers granted by GLBA, all of its depository institution subsidiaries must be well capitalized and well managed and have at least a “satisfactory” rating under the Community Reinvestment Act.

Specifically, GLBA permits financial holding companies to engage in securities underwriting and dealing, insurance underwriting, merchant banking, and expanded insurance agency activities. When GLBA was passed, it was expected that primarily very large bank holding companies would be interested in engaging in GLBA activities. But in reality, the experience has been different. Today, more than half of the 80 financial holding companies in the Federal Reserve’s Sixth District have total assets of $300 million or less (see the chart). Moreover, approximately 66 percent of the financial holding companies in the Sixth District (and 65 percent of those nationwide) do not engage in any GLBA-permitted activities.

Financial Holding Companies (FHCs)
in the Sixth District
Information current as of March 31, 2004
Source: Federal Reserve National Information Center database

Although a majority of financial holding companies in the Sixth District and the United States are currently not engaged in any GLBA activities, the financial holding company designation will allow bank holding companies to respond more quickly to market developments and opportunities.

By Alaina Gimbert, assistant legal counsel, and Chan White, Supervision and Regulation