Mutual Holdings

What is a mutual holding company?


Mutual holding companies (MHCs) are a unique blend of the characteristics of the mutual cooperative institution and a stock company.   Mutual holding companies are formed by the reorganization of a mutual institution whereby the mutual forms a stock institution subsidiary which receives  all of the assets and liabilities of the mutual institution with the parent holding company retaining all the attributes of mutuality while owning at least majority  of the new stock subsidiary.  Mutual holding companies were first authorized by the section 107 of the Competitive Equality Banking Act of 1987 (Pub. Law 100-86)


Types of Mutual Holdings

Parent Mutually Owned


Parent owns 75% of A, and through A, has 7,5% (75% x 10%) of its own (treasury) stock.

Connecting Affiliates Mutually Owned


Parent owns 80% of A, 20% of B, through A an additional 32% (80% x 40%) of B, and through B an additional 4% (20% x 20%) of A.

Treasury Stock or Conventional

Treasury stock method

–Treats parent mutually held stock as treasury stock.

–Parent has fewer shares outstanding.

–”Interdependency” assumed eliminated by treasury stock treatment.

Conventional method for mutual holding

–Treats stock as retired.

–Parent has fewer shares outstanding.

–Simultaneous set of equations.

–Fully recognizes interdependencies.

Parent Stock Mutually Held

One or more affiliates holds parent company stock :

  • Treasury stock method

–Recognize treasury stock at cost of subsidiary’s investment in parent.

–Reduce Investment in subsidiary.

  • Conventional method

–Parent treats stock as retired, reducing common stock, and additional paid in capital or retained earnings.

–Reduce Investment in subsidiary.


  • Both methods reduce

–Income from Subsidiary for the

–Parent dividends paid to subsidiary

  • Methods result in different

–Equity accounts :

       – Treasury stock,
       – Retired common stock.

–Consolidated retained earnings

–Noncontrolling interest

Subsidiary Stock Mutually Held

Subsidiaries hold stock in each other :

–Use conventional approach.

–Treasury stock method is not appropriate;

  • It is not parent’s stock.
  • Subsidiary stock is eliminated in consolidation.



  1. Advanced Accounting, 10th edition by Floyd A. Beams, Robin P. Clement, Joseph H. Anthony, and Suzanne Lowensohn


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