Question

Bank holding companies came about largely due to

	a.	restrictions on non-banking activities.
	b.	branching regulations and restrictions.
	c.	limited access to technology.
	d.	consumer protection.

Answer 1

The banking landscape in the United States has always been heavily influenced by regulations. Banks adapt to regulations and at times find ways to avoid those that they find undesirable, until new legislation is eventually passed to fill the gaps.

The Bank Holding Company Act was signed into law on May 9, 1956.

The first thing the law did was make clear what a bank holding company was. These entities had long existed; the Glass-Steagall Act acknowledged bank holding companies and provided for their regulation, but the Board’s power to limit branching was easily circumvented by treating branches as independent entities of which the larger holding company owned shares.

The main thrust of the act was that it gave the Federal Reserve broader regulatory powers over bank holding companies. They now had to register with the Board and submit to supervision. Most importantly, any bank holding company wishing to expand had to apply to the Board to do so. The Fed thereby had veto power on the expansion of interstate branching.

The reality was more complex. In deciding to allow or deny applications for expansion, the Board was required to get opinions from the Office of the Comptroller of the Currency and state banking regulators. Further, opinions were divided on the Board as to what the purpose of enforcing the law should be. The law itself did not prohibit the expansion of bank holding companies, but said that the Board must consider whether the expansion was in the interests of the community and of sound banking.

Hence ( B) part is a correct answer