Financial holding companies
Financial Holding Companies (FHCs) were created with passage of the Financial Modernization Act of 1999, which also repealed parts of the Glass-Steagall Act regulating Bank Holding Companies. In signing President Bill Clinton remarked, "It is true that the Glass-Steagall law is no longer appropriate for the economy in which we live."
The formal repeal of Glass-Steagall was recognition of changes that had already taken place, such as the Federal Reserves' revision of Regulation Y, making it easier for Bank Holding Companies with a satisfactory Community Reinvestment Act (CRA) rating to receive quicker approval for new acquisitions and engage in other activities.
The Glass-Steagall Act regulated Bank Holding Companies (BHCs) and was passed during the Great Depression. The Financial Modernization Act let commercial and investment banks merge with insurance companies into newly created financial holding companies, and allowed for proprietary trading on their own behalf. FHCs could be encumbered with the bad debts and risky investments non-banks held and BHCs specifically had to stay away from under Glass-Steagall. The result was "too big to fail" behemoths like Citigroup.
- STATEMENT BY PRESIDENT BILL CLINTON AT THE SIGNING OF THE FINANCIAL MODERNIZATION BILL, 11/12/1999, U.S. Department of the Treasury Press Center.
- Repeal of Glass-Steagall Caused the Financial Crisis, By James Rickards, USNews, August 27, 2012.
- Regulation Y Revised - Changes to the Federal Reserve Application Process, Community Investments, Volume 9; No. 3; Summer 1997, By Mike Johnson, Applications Officer, Federal Reserve Bank of San Francisco.