18 COLUMBIA LAW REVIEW [Vol.91:10 of equity remains stable. Bank trust departments are commercial banks'only remaining di- rect link to equity.Rules fragment trust fund investments:no more than 10%of a bank's trust f nds may be invested in the stock of any corpora ration.The regulation first came down a few years after Report warned against the growing power of bank trust de partments.Other trustee laws foster a hyper-fragmentation of the bank trust portfolio,well beyond that which financial economists say is needed for diversification.26 3.The Bank Holding Compa Legislation -Many bank owne wished to operate from several loc s or to chain several banks to- o6二 reincorporated themselves as holding companies,each owning several separately incorporated banks.The holding company had other regu latory advantage s:it was not subject to the same ngent regulatio as were the ubs diaries the 082 own businesses and stock,including control block company could In response, Congress enacted the Bank Holding Company Act of 1956,restricting a holding company's activities to those closely related to banking.A bank holding company cannot own more than 5%of the voting stock of any nonbanking company and cannot otherwisec ndustrial firm.28 Holdi con rol an ng compa only if the additional stock is nonvoting. Schwab.a securities dealer): o IP Mo &Co..11988-1989 Transfer Binder Fed.Banking ep.(CCD)(an.19RB approves application aR28 to establish under writing affiliate);Bankers Trust New York Corp.,75 89)(FRB approves application of commercial banks oc22CF.R.s9.18( 9 25.1 Staff of House Subcomm.on Domestic Finance,Comm.on Banking and Cur rency,90th Cong.,2d Sess.,Commercial Banks and Their Trust Activities:Emerging Repoitee on the American Economy 14 Comm.Print 1968)Chereinater Patnan rd Investor Challenges and(Samset Bicksler (forthcoming). d Tucker,Interst te Banking and the Feder Historical Per. Act of 1956,4(c (1988).Shares acquired in a fiduciar not included in the5%limit 29.Id.;P.Heller,Federal Bank Holding Company Law $4.03[2][b](1990).Au i companics couldm recn issu ompany Manual -11--14 (Feb.1990) xchangeCOLUMBIA LAW REVIEW of equity remains stable. Bank trust departments are commercial banks' only remaining di￾rect link to equity. Rules fragment trust fund investments: no more than 10% of a bank's trust funds may be invested in the stock of any single corporation. 24 The regulation first came down a few years after the Patman Report warned against the growing power of bank trust de￾partments. 25 Other trustee laws foster a hyper-fragmentation of the bank trust portfolio, well beyond that which financial economists say is needed for diversification. 26 3. The Bank Holding Company Legislation. - Many bank owners wished to operate from several locations or to chain several banks to￾gether. However, many states prohibit banks from branching and pro￾hibit out-of-state banks from operating locally. In the 1950s, banks reincorporated themselves as holding companies, each owning several separately incorporated banks. The holding company had other regu￾latory advantages: it was not subject to the same stringent regulation of activities as were the bank subsidiaries-the holding company could own businesses and stock, including control blocks.27 In response, Congress enacted the Bank Holding Company Act of 1956, restricting a holding company's activities to those closely related to banking. A bank holding company cannot own more than 5% of the voting stock of any nonbanking company and cannot otherwise control an industrial firm. 28 Holding companies can own more than 5% (up to 25%o), but only if the additional stock is nonvoting.29 Schwab, a securities dealer); see also J.P. Morgan & Co., [1988-1989 Transfer Binder] Fed. Banking L. Rep. (CCH) 87,554 (Jan. 19, 1989) (FRB approves application of commercial bank to establish underwriting affiliate); Bankers Trust New York Corp., 75 Fed. Reserve Bull. 829 (Oct. 30, 1989) (FRB approves application of commercial banks to engage in some brokerage activities). 24. 12 C.F.R. § 9.18(b)(9)(ii) (1990). 25. 1 Staff of House Subcomm. on Domestic Finance, Comm. on Banking and Cur￾rency, 90th Cong., 2d Sess., Commercial Banks and Their Trust Activities: Emerging Influence on the American Economy 1-4 (Comm. Print 1968) [hereinafter Patman Report]. 26. See Roe, Institutional Fiduciaries in the Corporate Boardroom, in Institutional Investors: Challenges and Responsibilities (A. Samsetz & J. Bicksler eds. 1991) (forthcoming). 27. Clair & Tucker, Interstate Banking and the Federal Reserve: A Historical Per￾spective, Fed. Reserve Bank of Dallas Econ. Rev., Nov. 1989, at 1, 6-12. 28. Bank Holding Company Act of 1956, § 4(c)(4)-(5), 12 U.S.C. § 1843(c)(5)-(6) (1988). Shares acquired in a fiduciary capacity are not included in the 5% limitation. Id. 29. Id.; P. Heller, Federal Bank Holding Company Law § 4.03[2][b] (1990). Au￾thority to own nonvoting stock of public companies was until recently largely illusory. Public companies could not issue nonvoting stock for most of the post-1956 era because of one-share, one-vote rules. New York Stock Exchange, New York Stock Exchange Listed Company Manual 3-11-3-14 (Feb. 1990). [Vol. 9 1: 10