A bank holding company is any entity that owns 10% or more of a bank. Bank Holding Companies are required to register with the governors of the Federal Reserve System.
Regulation
New or smaller Banks often convert themselves into bank holding companies to take advantage of the greater financial flexibility this designation affords them. The advantages and disadvantages of each are laid out on page three and four of the following document from denovobanks.com.
To summarize, becoming a bank holding company makes it easier for the firm to raise capital than if it remained a traditional bank. It can assume debt of shareholders on a tax free basis, borrow money, acquire other banks and non-bank entities more easily, and issue stock with greater ease. Likewise it has a greater legal authority to repurchase its own stock once issued.
The downside is greater levels of regulation, especially if there are more than 300 shareholders, at which point the Bank Holding Company is forced to file with the SEC and fall under all their regulatory regimes. There also added expenses of operating an extra layer of administration. This is offset however by the fact that BHCs are often exempt from a slew of state regulations and fees that a traditional bank would face.
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