Senators Urge FDIC to Act on Applications for Deposit Insurance Made By Industrial Banks
Commentary by Thomas Delaney
A bipartisan group of U.S. Senators urged the FDIC to grant "fair consideration" of applications for deposit insurance made by industrial loan companies ("ILCs") and voiced their opposition to regulatory actions that target lawful ILC applications.
In a letter to the FDIC, the group, led by U.S. Senator Mitt Romney (R-UT), criticized regulatory actions that target ILC charter applications and expressed concern about the FDIC's delays in the review and final decisions of pending applications. The Senators said that ILC's, which are under FDIC supervision, are financially safe and sound institutions, allowing the industry to successfully weather financial shocks. The Senators asserted that ILC's have historically enjoyed a great return on assets while maintaining higher capital levels and provide critical access to credit opportunities.
The Senators urged the FDIC to:
- evaluate all ILC applications based on existing laws and regulations that currently apply to FDIC- insured banks;
- provide specific feedback to rejected applicants that references relevant statutes and regulations;
- process applications in a timely manner;
- timely inform applicants regarding delayed applications of required steps to allow the process to proceed;
- continue supervising ILC's for soundness and safety;
- fully and fairly consider new applications without inherent disadvantages for ILC charters.
Commentary
ILCs are attractive options for companies, including non-banking companies, that want to offer financial services but not be subject at the parent company level to regulation as bank holding companies. The Dodd-Frank Act extended a regulatory moratorium that had applied to the approval of ILC charters since 2006. The statutory moratorium has expired, and in December 2020, the FDIC implemented a final rule that specified conditions for the approval of FDIC insurance (and certain other) applications, including in cases where a non-bank holding company will own an ILC. Those conditions generally require that such prospective parent companies enter into written agreements with the FDIC regarding certain supervisory matters. The FDIC rule can be accessed here.