Vanderbilt Law Review


Davis W. Turner

First Page



The Bank Holding Company Act I (BHCA) defines a bank as an institution that both accepts demand deposits and makes commercial loans. An institution choosing to perform only one of these two activities falls outside the scope of the BHCA and constitutes a "non-bank bank." The creators of a non-bank bank receive two principal benefits from the institution's status as a non-bank bank. First, a bank holding company acquiring a non-bank bank can avoid the geographical restrictions imposed by the Douglas Amendment to the BHCA. Second, a company outside of the banking industry may acquire a non-bank bank without becoming a bank holding company and, therefore, may operate free from the BHCA's products and geographic restraints.The discovery of this avenue for expansion in the financial services industry has led to an "avalanche" of applications to establish non-bank banks. While the Comptroller of the Currency("Comptroller") has been willing to grant charters to non-bank banks,' the Board of Governors of the Federal Reserve System("Board") has been very reluctant to approve these institutions and has opposed the widespread establishment of non-bank banks.The Board's resistance has resulted in litigation leaving the future of non-bank banks in doubt and has prompted forecasts of the demise of non-bank banks. Recent United States Supreme Court decisions, however, have

This Note examines the status of non-bank banks in light of these recent Supreme Court decisions and discusses concerns that Congress should address through legislation. Part II examines the legislative history behind both the BHCA's definition of a bank and the Douglas Amendment to the BHCA. Part III discusses regulatory and judicial responses to the creation of non-bank banks and analyzes the impact of the Supreme Court's Dimension Financial decision. Finally, Part IV looks at non-bank banks' influence on the financial services industry, examines proposed congressional solutions, and suggests the need for comprehensive banking reform legislation rather than piecemeal legislative action.