Related Organizations

Management

A primary benefit of affiliation with a holding company is the availability of management expertise in many diverse areas. The holding company structure can help bank management considerably by providing expertise when specialized knowledge is essential. Management training programs within the holding company also provide the basis for successor management at the bank level.

However, the availability of and use of the parent holding company’s directors and management at the bank may lead to conflicts of interest. Many of a parent company’s directors and managers often serve in the same capacities at a subsidiary bank. One-bank holding companies sometimes have the same board and management as the bank. Similarly, a multibank holding company with centralized operations is often characterized by the placement of directors and officers of the parent company (or those of the lead bank) in each of its bank subsidiaries. In this scenario, the parent company or lead bank usually controls such activities as investment portfolio management, budgeting, tax planning, personnel management, correspondent banking, loan participations, and asset-liability management. While such structures can provide benefits, including necessary expertise and economies of scale, banks should guard against the possibility that persons who serve in dual capacities will have conflicts of interest.

Weaknesses in holding company management may leave the subsidiary bank without a consistent strategic direction, and can compromise the bank’s risk management systems and inhibit the communication of risk tolerances. Conflicts of interest, poor administration, and other legal or control breaches may leave the bank vulnerable to changing market or regulatory conditions. If senior management maintains a dual role and tries to divide time between holding company and bank affairs, performance in both capacities may suffer.

The expansion and diversification of a holding company may cause subsidiary bank management to move to the holding company, leaving a void at the bank level. It is important, therefore, for the examiner to consider the impact of holding company management on the subsidiary bank.

Corporate policies should recognize the potential for conflicts of interest and provide guidance for resolution when cross-purposes exist. The overriding principle should be that the bank subsidiary should not be disadvantaged by a transaction with its parent company or any other affiliate.

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