What is a financial holding company?

A financial holding company refers to a limited liability company or joint stock limited company that has actual control over two or more financial institutions that do not belong to the same type, but only conducts equity investment management business and does not directly participate in or engage in commercial operations. Financial holding companies generally only engage in equity investment business and management business of financial institutions, and are prohibited from engaging in non-financial business.

Potential risks of financial holding companies

1. Systemic risk: Financial holding companies occupy a lot of financial resources, resulting in excessive systemic risk. The risk dispersion within the company is not enough to ensure safety, and the risks outside the system will still affect it;

2. Insider trading: Related transactions between subsidiaries of financial holding companies will affect each other's operating conditions, thus increasing the risk of insider trading of financial holding companies and ultimately harming the interests of consumers;

3. Excessive financial leverage: A financial holding company will allocate foreign capital to the capital of its subsidiaries, so that the funds are reflected in the balance sheets of the head office and subsidiaries at the same time. If subsidiaries continue to reuse funds, it will lead to double counting of assets, make the financial leverage ratio too high, and affect the company's financial stability and security.