Overview
- A three-part Federal Reserve Bank of New York series published July 15–17, 2026 shows large bank holding companies met tighter 2015 Basel III bank rules largely by shifting equity from their nonbank subsidiaries into regulated banks.
- Nonbank affiliates make up about 20 to 30 percent of consolidated holding-company assets and hold a disproportionate share of group equity, with median nonbank equity-to-asset ratios near 69 percent versus roughly 10 percent for bank subsidiaries.
- The authors document the mechanism: parents increased equity injections into banks funded by higher dividends and capital extraction from nonbank units, rather than by issuing new external equity.
- That internal transfer raised measured capital and cut charge-offs at bank subsidiaries while nonbanks saw falling equity ratios, riskier and more leveraged lending, and worse loan performance.
- Stress-test scenarios show meaningful recapitalization needs if nonbank assets lose value, with the average holding company needing about 18 percent of excess capital after a 5 percent nonbank loss and extreme cases approaching full buffers, which could expose parents, creditors, and taxpayers to losses and calls for tighter, organization-wide rules.