One of the most significant issues impacting community banks over the last decade has been the effect of increased regulation on community banks’ bottom lines. In the wake of the Great Recession, state and federal governments have overhauled the bank regulatory regime in an attempt to address the problems that led to the market turmoil in 2008 and to prevent future credit crises. However, these new regulations disproportionately impacted smaller community banks because they do not have the same resources to effectively and efficiently handle the increased regulatory burdens. As a result, smaller financial institutions have been considering options to reduce their regulatory costs and burdens and increase profitability. A few banks have sought to accomplish this by eliminating their holding companies.

Historically, there were several advantages to using a bank holding company structure. However, many of those benefits have ceased to exist in the post-Dodd-Frank era. Among them, the Federal Reserve used to permit trust preferred securities (hybrid debt/equity instruments), or TruPS, to receive Tier 1 capital treatment for regulatory capital purposes. Many bank holding companies raised capital through the issuance of TruPS because they received the same regulatory capital treatment as common stock, but allowed the issuer to take a deduction for interest payments and did not dilute existing shareholders.