Financial Holding Company Liability After Gramm-Leach-Bliley
This article examines the extent to which financial holding companies formed under the Gramm-Leach-Bliley Act (GLB Act) will bear the costs of the failure of their bank subsidiaries. Pre-GLB Act banking law provided numerous ways to impose liability on bank holding companies for bank failure. The GLB Act itself added some provisions dealing with holding company liability, providing protections for receivers of failed institutions and adding ammunition to the regulators' "source of strength" theory for imposing liability on bank holding companies, and, by extension, on financial holding companies. But despite tinkering at the edges, the GLB Act did not provide a comprehensive new approach to resolving failed banking institutions.
Instead, the GLB Act is essentially an overlay on top of the existing bank holding company act. Resolution of failed banks will continue to be conducted primarily under the pre-GLB Act regime, but changes in the financial services industry may change the application of those resolution techniques. Passed as it was during a time of strong performance in the banking sector, it is perhaps not surprising as a political matter that GLB Act is silent on an issue that will not arise again until the next period of banking industry distress.
This article discusses the modest changes to the bank resolution scheme implemented by the GLB Act and raises some unanswered questions about the resolution of failed banks in the GLB Act era. It concludes by suggesting that the goals of the failed bank resolution process ought to be clarified and the rules of the process spelled out and respected.
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