Bank Management and Financial Services Chapter 3
Dafna Avraham, Patricia Selvaggi, and James Vickery
A Structural View of U.S. Bank Holding Companies
1. Introduction
Notably, assets held in nonbanking subsidiaries or directly by the BHC parent account for a progressively larger share of total BHC assets over time (the gray area in Chart 1, panel A). This trend reflects a significant broadening in the types of commercial activities engaged in by BHCs and a shift in revenue generation toward fee income, trading, and other noninterest activities (Stiroh 2004). These trends are attributable in part to important changes in the regulatory environment, as discussed in Section 2. Partly the result of a wave of mergers, the share of BHC assets controlled by the ten largest firms has more than doubled over the past two decades, from less than 30 percent to more than 60 percent (see Chart 1, panel B). The total number of firms organized as BHCs has declined from 5,860 in 1991 to 4,660 as of fourth-quarter 2011, also reflecting industry consolidation. See Copeland (2012) for a further discussion of trends in banking consolidation and income generation. Chart 2 provides a window into the organizational complexity of large BHCs. One simple measure of complexity
1 Recent growth in industry assets plotted in Chart 1 in part reflects the conversion of several firms to a BHC organizational form (for example, Goldman Sachs, Morgan Stanley, Ally Financial, American Express) as well as out-of-industry acquisitions by BHCs (for example, JPMorgan Chase’s acquisition of Bear Stearns, an investment bank, and Bank of America’s acquisitions of Merrill Lynch and Countrywide Financial, an investment bank and savings bank, respectively). The sizable increase in total assets and nonbank subsidiary assets in first-quarter 2009 reflects the fact that this is the quarter in which Goldman Sachs and Morgan Stanley first file BHC regulatory reports. The bulk of the assets of these two firms are held outside their bank subsidiaries.
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A Structural View of U.S. Bank Holding Companies
1. Introduction
Notably, assets held in nonbanking subsidiaries or directly by the BHC parent account for a progressively larger share of total BHC assets over time (the gray area in Chart 1, panel A). This trend reflects a significant broadening in the types of commercial activities engaged in by BHCs and a shift in revenue generation toward fee income, trading, and other noninterest activities (Stiroh 2004). These trends are attributable in part to important changes in the regulatory environment, as discussed in Section 2. Partly the result of a wave of mergers, the share of BHC assets controlled by the ten largest firms has more than doubled over the past two decades, from less than 30 percent to more than 60 percent (see Chart 1, panel B). The total number of firms organized as BHCs has declined from 5,860 in 1991 to 4,660 as of fourth-quarter 2011, also reflecting industry consolidation. See Copeland (2012) for a further discussion of trends in banking consolidation and income generation. Chart 2 provides a window into the organizational complexity of large BHCs. One simple measure of complexity
1 Recent growth in industry assets plotted in Chart 1 in part reflects the conversion of several firms to a BHC organizational form (for example, Goldman Sachs, Morgan Stanley, Ally Financial, American Express) as well as out-of-industry acquisitions by BHCs (for example, JPMorgan Chase’s acquisition of Bear Stearns, an investment bank, and Bank of America’s acquisitions of Merrill Lynch and Countrywide Financial, an investment bank and savings bank, respectively). The sizable increase in total assets and nonbank subsidiary assets in first-quarter 2009 reflects the fact that this is the quarter in which Goldman Sachs and Morgan Stanley first file BHC regulatory reports. The bulk of the assets of these two firms are held outside their bank subsidiaries.
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