Are Bank Holding Companies a Source of Strength to Their Banking Subsidiaries?


  • Thanks to seminar participants at the Federal Reserve Bank of Chicago, the University of Illinois Department of Finance, the 2004 Federal Reserve System Banking Conference, and the Center for Financial Research at the FDIC for their constructive comments and to Martin Castellano for excellent research assistance. Any remaining errors are my own, and the views expressed here are those of the author and not of the Federal Reserve Bank of New York or the Federal Reserve System.


I document evidence that a bank affiliated with a multi-bank holding company (MBHC) is significantly safer than either a stand-alone bank or a bank affiliated with a one-bank holding company. Not only does MBHC affiliation reduce the probability of future financial distress, but distressed affiliated banks are also more likely to receive capital injections, recover more quickly, and are less likely to fail over the next year. Moreover, the measured benefits of affiliation are much larger than those that existed before recent reforms of bank holding company regulation, suggesting that much of the observed benefit can be attributed to regulation and not the market.