A bi-partisan group of nine Senators (five Republicans and four Democrats) recently sent a letter to Acting FDIC Chairman Martin Gruenberg to express their support for the industrial loan company (ILC) charter and to remind him “to ensure the [FDIC] continues to follow the laws that Congress carefully designed for the FDIC to consider new deposit insurance applicants, including ILCs.” They also expressed their strong opposition to “regulatory actions, both formal and informal, that might target the ILC charter in a manner not consistent with the laws Congress has passed.”
Giving credit to “the work of the FDIC,” the Senators commented that that “the safety and soundness of the ILC charter has been broadly successful when historically compared to the rest of the banking industry.” They also promoted the ability of the ILC charter to allow “new and expanded opportunities in the regulated banking sector,” noting that some ILCs “perform niche lending in arenas oftentimes ignored by the larger financial institutions” and “can enhance sector or local economies in ways that traditional financial institutions do not.”
The Senators concluded the letter by asking the FDIC both for “continued supervision of ILCs to ensure safety, soundness and consumer protection, as well as full and fair consideration of any de novo applications without inherent disadvantage for an ILC charter.”
In December 2020, the FDIC issued a final rule setting forth the conditions it will impose and the commitments it will require to approve a deposit insurance application from an industrial bank or ILC whose parent company is not subject to consolidated supervision by the Federal Reserve Board.
The ILC charter has been controversial for many years because a parent company that controls an ILC and is exempt from the Bank Holding Company Act (BHCA) definition of a “bank” will not be subject to restrictions in the BHCA and Federal Reserve Board Regulation Y on nonbanking activities imposed on a bank holding company or a financial holding company.
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