DEFINITION of 'Multibank Holding Company'
A company that owns or controls two or more banks. Because of their corporate status, they are subject to more regulations than banks, but also have more options for raising capital. Mutlibank holding companies are governed by the Bank Holding Company Act of 1956 and its amendments. The Act was designed to check the expansion of banks and to ensure that they had separate banking and non-banking functions.
BREAKING DOWN 'Multibank Holding Company'
The rise of multibank holding companies has much to owe to geography and the impact of regional economics. Historically, banks served the area around the physical location of the bank itself. If businesses in the surrounding area failed in large enough numbers, the banks would not be able to stay open. During the Great Depression, for example, the failure of large numbers of farms resulted in many banks across the United States having to close.
Multibank holding companies provide a level of diversification, as a company with banks across several different communities ostensibly is less risky than a company with only one bank. The creation of subsidiaries allowed individual banks to combine administrative operations, which reduced costs while also allowing them to tap into their holding company’s assets in times of crisis.
State banking laws influence whether multibank holding companies are likely to set up in a particular state. Unit banking states tend to have more multibank holding companies since the law prohibits bank branching, while branch and limited-branch banking states tend to have more one-bank holding companies.