What are the advantages of forming a financial holding company versus forming a bank holding company?

Expert Solution

Ans: Financial Holding Companies (FHC) & Banking Holding Companies (BHC) are both being derived under BHC act 1956, FHC can is a type of BHC that can do non banking financial services like securities underwriting and dealing, insurance agency and underwriting activities, and merchant banking activities.

As we can see today, these services are more profit making and many big banks are leveraging these services to define their profits.

BHC are not allowed to do thee non banking financial services under the same name, either by creating a separate subsidiary or convert its arm to FHC.

A bank holding company qualifies as a financial holding company when its banking subsidiaries are well capitalized and well managed.

Nonbank company that earns 85% or more of its gross income from financial services may elect to become an FHC but must divest itself of all nonfinancial businesses within 10 years.

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