from the St Louis Fed

Many researchers have long categorized commercial banks by the Federal Reserve district in which the banks are physically located. The St. Louis Fed’s Federal Reserve Economic Database, commonly known as FRED, has traditionally used this method with its banking data.[ 1] However, there may be times when it makes more sense to categorize a commercial bank according to the Fed district that supervises the institution’s bank holding company (BHC) that is the parent of the commercial bank.

Bank Supervision Structure

In a recent Regional Economist article, Senior Economist Andrew Meyer, with the St. Louis Fed’s Banking Supervision and Regulation Division, provided a brief background on how banking supervision is structured in the United States.

He noted that commercial banks are regulated by one of three federal regulators:

Supervising Bank Holding Companies

Regardless of charter, most banks are organized as subsidiaries of BHCs, and all BHCs are supervised by the Fed, Meyer explained.

A BHC can be a simple structure, known as a “shell” holding company, which consists of only one bank subsidiary and no nonbank subsidiaries.

“In most cases, the headquarters of a BHC is in the same Fed district as its biggest subsidiary bank, also called the lead bank,” Meyer noted. “In fact, for most shell holding companies, the two headquarters are in the same building.”

On the other hand, there are many BHCs that are very large and complex.

“For example, a BHC may have its headquarters in New York City to give it better access to global financial markets and other major financial institutions, but it may also have a subsidiary in another state to take advantage of lower corporate taxes and a subsidiary in a third state to take advantage of relatively permissive usury laws,” Meyer explained.