FDIC Proposes Rules for Parent Companies of Industrial Banks and Industrial Loan Companies; Approves First Applications in More than Ten Years

The FDIC issued a proposed rule that would codify a number of required commitments that are typically imposed as a condition to granting approvals of an industrial bank’s or industrial loan company's ("ILC's") deposit insurance applications. These conditions apply to parent companies of industrial banks, which, since 1987, have escaped regulation as bank holding companies under the Bank Holding Company Act of 1956.

Under the proposal, a parent company would be required to enter into a written agreement that (i) addresses the company and industrial bank's relationship, (ii) requires capital and liquidity support from the parent company to the industrial bank, and (iii) sets forth the FDIC's supervisory expectations of the parent company. According to the FDIC, the proposal would be applicable to industrial banks that would become subsidiaries of a parent company that are not subject to Federal Reserve supervision following the approval of a (i) deposit insurance application, (ii) change in control notice, or (iii) merger application.

FDIC Chair Jelena McWilliams praised the proposal for:

• ensuring that parent companies serve as a "source of strength" for each covered industrial bank that is approved for deposit insurance; and

• providing transparency regarding parent company requirements for future applicants.

Comments on the proposal must be submitted within 60 days of publication of the Federal Register.

A day after the proposal was issued, the FDIC approved separate deposit insurance applications by Nelnet Bank and Square Financial Services (see here and here), both proposed industrial banks that are awaiting charter approvals from the Utah Department of Financial Services. The approvals mark the first time that the FDIC has approved an ILC application since 2008.