Bank Parents About to Receive a Big ‘Wake-Up Call’

By Joe Adler

For all the hoops companies have to jump through to own a bank, the expectation that they must be able to bankroll their subsidiaries in the event of trouble has never been totally clear. Until now. Banking regulators are working on a proposal that would require parent firms to act as a “source of strength” for their banking subsidiaries. While such a requirement to some degree has been present for bank holding companies, other types of parents — including thrift holding companies and industrial loan companies — have never faced such a formal mandate. “For some companies, this will be a wakeup call,” said Karen Shaw Petrou, managing partner for Federal Financial Analytics. “It’s one of those things you take for granted in the bank holding company context. But the thrift holding company area was different. … It was an opportunity for regulatory arbitrage. Dodd-Frank seeks to correct that by extending the source-of-strength construct to any depository institution parent.”