Of Firewalls and Subsidiaries: The Right Stuff for Expanded Bank Activities

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Abstract
The extent and structure of non-banking activities for commercial banks has been a long-standing policy concern for the United States. Recently, three alternative models for the undertaking of non-traditional activities -- the universal bank, the separate subsidiary of the holding company, and the operating subsidiary of the bank -- have come to the fore. After reviewing the history of activity restrictions on banks and providing an analytical framework for considering the appropriate structure, we conclude that the "op sub" approach has modest advantages, but that even it carries substantial risks and requires vigorous monitoring and enforcement.

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