What's the Difference Between a Bank and a Bank Holding Company?

The Harvard Law School Corporate Governance Blog yesterday featured a post by John Coates accusing the bailout of robbing banks.

"The Troubled Asset Relief Program," writes Coats, "has channeled aid to bank holding companies rather than banks. The Obama administration’s new Financial Stability Plan will have more influence on bank lending if it actually directs its support to banks."


Coats then explains the distinction between banks and bank holding companies: "Banks take deposits and make loans to consumers and corporations. Bank holding companies own or control these banks. The big holding companies also own other businesses, including ones that execute trades both on their clients’ behalf and for themselves," he writes.

"While TARP has been generous with bank holding companies, these companies have not been so generous with their banks," he adds. "Four large holding companies — JP Morgan, Citigroup, Bank of America and Wells Fargo — initially received a total of $90 billion in TARP money in the fall, but by the end of 2008 they had contributed less than $15 billion in equity capital to their subsidiary banks.

"The holding companies seem to have invested most of their TARP money in their other businesses or else retained the option to do so by keeping it in deposit accounts, even as the capital of their banks decreased. At the same time the banks, which provide the majority of loans to large corporate borrowers, drastically reduced lending to new borrowers."

Are the bailout cops over at Recovery.gov keeping an eye on this?

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