Meet the Author

Mahmoud Elamin |

Research Economist

Mahmoud Elamin

Mahmoud Elamin is a research economist in the Research Department. He is primarily interested in applied theory, game theory, financial economics, and banking. His current work focuses on credit rating agencies, reputation, and regulation.

Read full bio

Meet the Author

William Bednar |

Senior Research Analyst

William Bednar

William Bednar is a senior research analyst in the Research Department of the Federal Reserve Bank of Cleveland. He joined the bank in January 2012, and his work focuses on financial economics, macroeconomics, and international economics.

Read full bio

08.29.2012

Economic Trends

Bank-Holding Companies in the Last Decade

Mahmoud Elamin and Bill Bednar

Generally speaking, a bank-holding company (BHC) is a company that controls more than 25 percent of the voting securities of an FDIC-insured bank. One exception is if the company is holding the securities for trade. Such companies are not classified as BHCs. Below we discuss the condition of  U.S. BHCs since 2001. We focus on those with assets of more than $500 million.

BHCs have to file quarterly financial forms called “call reports” with their primary regulator, the Federal Reserve Board. These reports form the basis of our discussion. Note that we drop BHCs with assets below $500 million from the sample, since the reporting regime changed slightly and these BHCs report differently before and after 2006.

We first look at the current number of BHCs distributed across five different categories of asset size. We see that the larger the asset size class, the fewer the banks there are in it. As of June 2012, there are only six BHCs with more than $750 billion in assets and more than 450 that have between $500 million and $1 billion in assets.

Next we look at how assets are distributed across these asset size classes. That is, we sum the total dollar amount of assets held by the BHCs in each of the size categories of the chart above. We find that almost 60 percent of total assets are held by the top 6 banks. It is no surprise that we hear constant talk about the importance of too-big-to-fail institutions.

The number of BHCs has risen steadily since 2001. Neither the recession after the dot-com bubble nor the Great Recession has discouraged new bank-holding company starts.

The increase in BHCs has been mainly driven by banks with assets below $10 billion. The number of banks with assets between $10 billion and $750 billion has largely stagnated in the last decade or so. The Great Recession has not altered these trends.

We next look at the growth of assets in dollar amounts across the asset size classes. Assets held by the smaller BHCs have grown significantly.

The assets of banks with between $10 billion and $750 billion have largely stagnated in the last decade, with the Great Recession having no large effect on the dollar amount of assets they hold. The most spectacular growth is in the assets of banks with assets over $750 billion—these have increased almost tenfold. Clearly, the Great Recession has continued the trend of concentrating assets in the largest banks.

Finally, we look at the average bank capitalization ratios of BHCs. Generally speaking, capital is what remains when the value of liabilities is subtracted from the value of assets, but it can be measured in a number of ways. Tier 1 capital is the sum of common equity, noncumulative preferred stocks, and minority interests. The tier 1 capital ratio and the total capital ratio both dipped to their lowest point during the financial crisis and then reversed course and trended upwards. These ratios are, respectively, the ratio of tier 1 capital to total risk-weighted assets and the ratio of total capital to total risk-weighted assets. After the crisis, the tier 1 leverage ratio, the ratio of tier 1 capital to average total tangible assets, improved slightly.