Bank Holding Company

Not to be confused with a regular bank, a Bank Holding Company that does not directly engage in banking activities, but rather owns banks as well as other subsidiaries involved in non-banking activities including mortgage lending, consumer and credit card operations.

During the financial crisis on Wall Street, the Federal Reserve attempted to prevent the crisis from affecting two top investment banking institutions—Morgan Stanley and Goldman Sachs—by reclassifying them as traditional bank holding companies.

With new status as Federal Bank Holding Companies, these firms now have ongoing access to the Federal Reserve Bank Discount Window, which means they can borrow funds at the Federal Reserve’s discount rate, which is a below-market rate. It also gives them expanded opportunities for funding.

In return for access to the Fed’s funding, the firms will be required to hold more capital on reserve and they must be subjected to tighter regulation and oversight, not only by the Securities and Exchange Commission, but several other branches of the government as well.