These two developments, taken together, signal a path forward for the use of deposit-taking industrial bank charters by companies that cannot (or do not wish to) subject themselves to the activity restrictions of the Bank Holding Company Act of 1956, as amended (the “BHC Act”).

Background

The BHC Act is the principal legislation that implements the national policy of separating banking from commerce. Under the BHC Act, any company that controls a “bank” must register as a bank holding company and abide by restrictions on the activities in which it and its affiliates can engage.

Among other things, bank holding companies are prohibited from engaging in nonbanking activities—that is, any activities that are not “closely related to” banking or managing or controlling a bank, unless an exemption applies.[3] In addition, bank holding companies are subject to consolidated supervision by the Federal Reserve. In other words, bank holding companies, and their nonbank subsidiaries, are subject to Federal Reserve examination, supervision, and oversight.

Industrial banks were first organized under state charters in the early 20th century as local consumer finance companies for industrial workers, and their powers vary from state to state. Notwithstanding the general framework created by the BHC Act, industrial banks that are FDIC-insured depository institutions and function in substantially the same manner as traditional banks are not considered “banks” for purposes of the BHC Act if certain conditions are met. Specifically, an industrial bank will not be considered a “bank” under the BHC Act if it: (1) is chartered in one of five states (Utah, Nevada, California, Minnesota, and Hawaii);[4] and (2) either (a) has less than $100 million in total assets or (b) does not accept demand deposits that may be withdrawn by check.[5] Consequently, any company that controls an industrial bank meeting these conditions is not itself a bank holding company (solely by virtue of that fact) and is not subject to the BHC Act’s nonbanking activity limitations or Federal Reserve oversight.[6]

As a result, commercial firms, while not permitted to control BHC Act “banks,” are permitted to control industrial banks. In fact, commercial companies such as BMW, Harley Davidson, and others do control industrial banks.

Industrial banks have a controversial history. Some are concerned that industrial banks and their holding companies are at a competitive advantage compared with BHC Act banks and their holding companies, since commercial firms can own industrial banks. Others argue that industrial banks inject risk into the U.S. financial system by eroding the separation between banking and commerce and avoiding consolidated supervision. Due in part to these concerns, the FDIC imposed an administrative moratorium on approving industrial bank applications for deposit insurance in the mid-2000s, which was followed by a legislative moratorium imposed by the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).[7] The legislative moratorium under the Dodd-Frank Act expired in 2013.

Since 2013, and particularly in the current deregulatory environment, there has been renewed interest in the industrial bank charter, especially from financial technology (“FinTech”) companies that may not be able to comply with the BHC Act’s activity limitations. For these companies, the industrial bank charter is likely to be attractive. In particular, through an industrial bank charter, FinTechs can have access to inexpensive, stable funding in the form of time deposits, and can export interest rates across state lines.[8]

Federal Regulation of Companies That Control Industrial Banks

Although exempt from Federal Reserve supervision, parent companies of industrial banks are subject to regulation and oversight by the FDIC.[9] Under the Federal Deposit Insurance Act (the “FDI Act”), the FDIC has the authority to examine any affiliate of an industrial bank, including its parent company.[10] In addition, as amended by the Dodd-Frank Act, section 38A of the FDI Act requires the FDIC to ensure that any company that controls an industrial bank serves as a source of financial strength for the industrial bank.[11] Authority to regulate controlling companies of industrial banks may also be derived from the FDIC’s responsibility to protect the deposit insurance fund (DIF) and ensure the safety and soundness of insured depository institutions.[12]

Before the Dodd-Frank Act amended Section 38A of the FDI Act to create a statutory source of strength requirement, banking regulators applied the requirement as a matter of supervisory policy. Section 4.3 of the FDIC’s Risk Management Manual of Examination Policies (last revised in 2005) explains that commercial companies that control industrial banks may be expected to serve as “a source of strength for their subsidiary bank by providing access to the capital and debt markets, and affording the opportunity to use a variety of technical services not always available to small or mid-size banks.”[13] The Federal Reserve has long applied a similar source of strength requirement to bank holding companies, noting in a 1987 Policy Statement that bank holding companies should “stand ready to use available resources to provide adequate capital funds to its subsidiary banks during periods of financial stress or adversity and should maintain the financial flexibility and capital-raising capacity to obtain additional resources for assisting its subsidiary banks.”[14]

Historically, to implement the source of strength policy, the FDIC required controlling companies of industrial banks to enter into a capital and liquidity maintenance agreement (CALMA). As its name suggests, a CALMA generally requires a company that controls an industrial bank to take certain actions to support the capital and liquidity position of the industrial bank in times of financial distress. The FDIC has also exercised oversight over controlling companies of industrial banks through written agreements with controlling parties, and conditions imposed in connection with the grant of deposit insurance or issuance of a non-objection to a change in control. Together, these measures had formed the basic supervisory framework in which the FDIC regulated companies that control industrial banks. As explained above, the Dodd-Frank Act turned the source of strength policy into a mandate by explicitly requiring the FDIC to ensure that any company that controls an industrial bank serves as a source of financial strength for the industrial bank.

Overview of the NPR

If adopted, the NPR would provide transparency and consistency to the FDIC’s approach to regulating companies that control industrial banks. In addition to codifying current practice, the NPR would expand requirements in a number of key respects.

Scope of Application

The FDIC proposes to apply the new rules solely with respect to industrial banks that are controlled by “Covered Companies.” Under the NPR, the term “Covered Company” means any company that is not subject to consolidated supervision by the Federal Reserve[15] and that controls an industrial bank (in each case after the effective date of the rule) as a result of:

(1) a change in bank control;
(2) a merger transaction; or
(3) a de novo application.[16]

These are the three circumstances in which the FDIC would be in a position to consider whether an industrial bank was controlled by a Covered Company and, if so, what restrictions or commitments the FDIC could require from the Covered Company.[17]

Choice of Control Definition in NPR

A Covered Company includes only certain companies that “control” an industrial bank. In all material respects, the concept of control for purposes of the NPR is the same as the concept of control established under the Change in Bank Control Act (CIBCA). In other words, “control” is “the power, directly or indirectly, to direct the management or policies of a company or to vote 25% or more of any class of voting securities of a company.[18] The definition of “control” would also include the CIBCA’s rebuttable presumptions of control, pursuant to which a company that holds 10% or more of any class of voting securities of another company is presumed to control the other company if: (1) shares of the other company are registered under section 12 of the Securities Exchange Act of 1934 or (2) no other person owns a greater share of that class of voting securities of the other company.[19] Finally, the definition of “control” would include the CIBCA’s rebuttable presumptions of acting in concert.[20]

As a result of the control presumptions taken from the CIBCA, there is a disparity between what level of ownership would trigger control under the BHC Act and under the NPR. For example, under the BHC Act definition of control, there is no presumption of control for shareholders holding 10% or more of any class of voting securities of another company even where the shareholder is the largest shareholder in the company or the company’s securities are registered (absent other indicia of control).[21]

On one hand, it is understandable that the FDIC would adopt the CIBCA definition of control since a CIBCA notice is one of the circumstances under which the FDIC would be in a position to evaluate controlling shareholders of industrial banks. However, from a policy perspective, there could be circumstances where the disparity creates an incongruence in the regulation of bank holding companies and Covered Companies.

Requirements Imposed on Covered Companies

The NPR would require Covered Companies to enter into a written agreement with the FDIC and its industrial bank subsidiary as a condition of the FDIC’s non-objection to a change in control notice, or approval of a merger or deposit insurance application. The agreement would require the Covered Company to do the following:

• Submit an initial listing of all subsidiaries and update such list annually;
• Consent to the examination by the FDIC of the Covered Company and each of its subsidiaries;
• Submit an annual report to the FDIC, and any other such reports as requested by the FDIC;[22]
• Maintain such records as the FDIC may deem necessary to assess the risks to the subsidiary industrial bank or to the DIF;
• Cause an annual, independent audit of each subsidiary industrial bank;
• Limit direct or indirect representation of the Covered Company on the board of directors or board of managers of each subsidiary industrial bank to no more than 25%;
• Maintain the capital and liquidity of the subsidiary industrial bank at such levels as the FDIC deems appropriate, and take such other actions as the FDIC deems appropriate to provide the subsidiary industrial bank with a resource for additional capital and liquidity;[23]
• Execute a tax allocation agreement with its subsidiary industrial bank;[24] and
• Provide any additional commitments as required by the FDIC in its sole discretion.

These requirements would enable the FDIC to have complete and timely information on the activities of the Covered Company and its affiliates. And many of the requirements are not controversial or particularly onerous since they are already required elsewhere in the law (for reporting, recordkeeping, audits, etc.) or have historically been required by the FDIC in connection with applications from industrial banks (the CALMA requirement).

However, the limitation on board representation of the Covered Company to 25% or less of the industrial bank’s board seems to be a new requirement and one that would be particularly restrictive.[25] The FDIC stated in the preamble to the NPR that the limitation is intended to “limit the extent of each Covered Company’s influence over a subsidiary industrial bank.”[26] But it is unclear what purpose is served by limiting a Covered Company’s influence over an industrial bank when such company is already deemed to be in a control position. And limiting board representation to a significant minority position may reduce a Covered Company’s ability to effectively provide operational control and adequate oversight, commensurate with its control position. Moreover, restricting board representation in this manner is not necessarily consistent with the source of strength requirement that attaches to control. Although Square, Inc. and Nelnet, Inc. accepted this limit on board representation as a condition to their respective approvals, as discussed below, it will be interesting to see whether this feature is subject to significant critical comment.

Finally, under the NPR, the FDIC would reserve the authority to require, in its sole discretion, an individual who is a controlling shareholder of the Covered Company to enter into a written agreement with the commitments described above as a condition for its approval. This is not consistent with the treatment of shareholders that are individuals under the BHC Act and the NPR does not provide any standards or guidance as to when the FDIC would or would not exercise this discretion. Nevertheless, as discussed below, the individual controlling shareholders of both Square, Inc. and Nelnet, Inc. joined the commitments made in connection with their respective approvals.

Contingency Plan

Under the NPR, the FDIC would have the authority to require a Covered Company and its industrial bank subsidiary to submit to the FDIC and comply with a contingency plan. The contingency plan would set forth, “at a minimum, recovery actions to address significant financial or operational stress that could threaten the safe and sound operation of the industrial bank and one or more strategies for the orderly disposition of such industrial bank without the need for the appointment of a receiver or conservator.”[27] The contingency plan would be subject to the FDIC’s approval.

A contingency plan would not be a resolution plan (as required by the Dodd-Frank Act), since it would address the steps an institution should take to mitigate financial and operational stress outside of receivership. However, like a resolution plan, it would facilitate an understanding of the risks and types of events that could create a safety and soundness issue for an industrial bank.

In the preamble to the NPR, the FDIC explains that the requirement is described in general terms to give the FDIC flexibility to tailor its application to each industrial bank based on its size, complexity and interdependencies.[28] However, this intentional vagueness creates uncertainty as to what the FDIC may require and how the contingency plan requirement would be used for supervisory purposes.

Requirements Imposed on Industrial Banks

Under the NPR, the FDIC would impose additional restrictions on industrial banks that are subsidiaries of Covered Companies. Specifically, the NPR would require prior approval from the FDIC for such industrial banks to do any of the following:

• Make a material change in its business plan;
• Add or replace a member of the board of directors, board of managers, or a managing member;
• Add or replace a senior executive officer;
• Employ a senior executive officer who is associated in any manner (e.g., as a director, officer, employee, agent, owner, partner, or consultant) with an affiliate of the industrial bank;[29] or
• Enter into any contract for services material to the operations of the industrial bank (for example, a loan servicing function) with such Covered Company or any subsidiary thereof; or
• Any additional restrictions on the operations or activities of the industrial bank in the FDIC’s sole discretion.

These restrictions are largely consistent with the FDIC’s current practice with respect to de novo bank applications. However, what may be different is that historically, conditions imposed on de novo charters generally expire after a three-year period (although it is not uncommon for no limitation to apply if necessary to mitigate risk).[30] Under the NPR, there is no time limitation on the conditions imposed on industrial banks as listed above.

Conditional Approvals

In the preamble to the NPR, the FDIC also indicates it may impose additional requirements on Covered Companies through conditional approvals of applications or non-objections to change in control notices. These conditions may be enforced pursuant to the FDIC’s authority under the FDI Act. Because the FDIC already has this authority, the FDIC stated that “it is not necessary to include provisions regarding conditions in the [NPR].”[31]

Nelnet and Square Approvals

While the FDIC has entertained a number applications from would-be shareholders in industrial banks in recent years, the absence of any approvals raised the question of whether the charter’s use by FinTech firms was actually a viable option. The FDIC has now answered the question by approving applications from Square, Inc. and Nelnet, Inc. and the industrial bank charter is now more than a theoretical option for FinTech companies.

According to the FDIC’s press releases, Square, Inc. will use its industrial bank subsidiary to originate commercial loans for merchants that are already existing customers of its payment system.[32] Nelnet, Inc. will use its bank affiliate to originate and service consumer loans, including private student loans, which is complementary to its core business.[33] Both companies stated that they intend to offer deposit products.[34]

The path for both of these companies to gain approval was long. In fact, both companies previously submitted applications for deposit insurance, only to withdraw them prior to a determination by the FDIC.

While mostly aligned with the NPR, in some respects, the conditions accepted by Square, Inc. and Nelnet, Inc. in connection with their application approvals are less restrictive than those that would be required under the NPR. For example, while the NPR would require industrial bank subsidiaries of Covered Companies to obtain the FDIC’s approval for any changes to its senior management or board of directors in perpetuity, the new industrial bank subsidiaries of Square, Inc. and Nelnet, Inc. are required to obtain such approvals only for the first three years of operation. Since the Square, Inc. and Nelnet, Inc. industrial banks would be grandfathered under the NPR, the new rules would not apply to these companies.

The chart below describes certain restrictions imposed on Square, Inc. and Nelnet, Inc. in connection with their approvals for deposit insurance and shows how the restrictions compare to those proposed in the NPR.[35]

[1] FDIC, Parent Companies of Industrial Banks and Industrial Loan Companies, 85 Fed. Reg. 17771, available at: https://www.govinfo.gov/content/pkg/FR-2020-03-31/pdf/2020-06153.pdf.

[2] The order of approval for Square, Inc. is available at https://www.fdic.gov/news/news/press/2020/pr20033.html, and for Nelnet, Inc. at https://www.fdic.gov/news/news/press/2020/pr20034.html.

[3] Certain specially designated bank holding companies that qualify as “financial holding companies” have broader powers but generally these are restricted to powers that are deemed financial in nature.

[4] Industrial banks chartered in Colorado may also qualify for the BHC Act exclusion. However, Colorado has since repealed its statute authorizing industrial banks, so the exclusion is moot. Also, while conspicuously absent from the discussion in the NPR, previous guidance from the FDIC states that industrial banks chartered in Indiana may also qualify for the BHC Act exclusion. See https://www.fdic.gov/regulations/examinations/supervisory/insights/sisum04/industrial_loans.html.

[5] 12 U.S.C. § 1841(c)(2)(H). Industrial banks in operation prior to the enactment of the Competitive Equality Amendments of 1987 are also grandfathered into the exclusion. Id.

[6] Industrial banks are still subject to a number of regulatory requirements and are supervised by both the FDIC and their state chartering authority. Companies that control industrial banks are also subject to the Volcker Rule, i.e., Section 13 of the BHC Act, although, recent amendments to the Volcker Rule provide an exclusion for smaller institutions and their holding companies. The exclusion applies to any insured depository institution that does not have and is not controlled by a company that has (i) more than $10 billion in total consolidated assets; or (ii) total trading assets and trading liabilities (on a consolidated basis) that are more than 5% of total consolidated assets. 12 U.S.C. § 1851(h)(1)(B). Any company that controls an insured depository institution that qualifies for this exclusion would not be subject to the Volcker Rule solely due to that fact.

[7] See Preamble to NPR, 85 Fed. Reg. at 1774-1776.

[8] A state-chartered insured depository institution is authorized to charge interest at a rate at least as high as that authorized by the laws of the state in which the bank is located, notwithstanding any other state constitution or statute requiring a lower rate of interest. 12 U.S.C. § 1831d

[9] Parent companies of industrial banks may also be subject to state law requirements. Industrial banks are also regulated at both the state and federal level.

[10] 12 U.S.C. § 1820.

[11] 12 U.S.C. § 1831o-1. The term “source of financial strength” “means the ability of a company that directly or indirectly owns or controls an insured depository institution to provide financial assistance to such insured depository institution in the event of the financial distress of the insured depository institution.” Id.

[12] See Preamble to NPR, 85 Fed. Reg. at 17772 (“A key part of [the FDIC’s] supervision is evaluating and mitigating the risks arising from the activities of the control parties and owners of insured industrial banks to ensure they do not threaten the safe and sound operations of those industrial banks or pose undue risk to the Deposit Insurance Fund (DIF).”).

[13] FDIC, Risk Management Manual of Examination Policies, Section 4.3, available at: https://www.fdic.gov/regulations/safety/manual/.

[14] Federal Reserve, Policy Statement on the Responsibility of Bank Holding Companies to act as Sources of Strength to their Subsidiary Bank, 52 Fed. Reg. 15707, April 30, 1987, available at:https://www.fdic.gov/regulations/laws/rules/7500-5000.html.

[15] The definition of Covered Company could create a potentially anomalous result when it comes to foreign banking organizations (FBOs) since the definition includes “any company that is not subject to consolidated supervision by the Federal Reserve” and controls an industrial bank. Most if not all FBOs would likely meet this standard even though they may be subject to consolidated supervision by their home country supervisor. It can be expected that this situation will be addressed by commenters on the NPR. In principle, given the regime of supervision and regulation of FBOs, there are strong policy reasons why FBOs should not be deemed to be “Covered Companies.”

[16] There could be multiple Covered Companies for a single industrial bank, for example, where one company controls another company that controls an industrial bank or where more than one company holds a control position in the industrial bank. See 85 Fed. Reg. at 17777.

[17] In the first circumstance, a Covered Company would have to apply to file a notice with the FDIC of its intention to exercise control over an industrial bank under the Change in Bank Control Act (CIBCA). In the second circumstance, if a company merged into an industrial bank, the FDIC would have approval authority under the Bank Merger Act (12 U.S.C. § 1828). In the case of such a merger, if a Covered Company were to control the merged institutions following the merger, the FDIC would have the opportunity to approve (or disapprove of) the circumstances under which the Covered Company would control the merged institutions. In the third circumstance, if a company sought to organize an industrial bank de novo (as with the Square, Inc. and Nelnet, Inc. applications) the FDIC would be in a position to evaluate any Covered Company.

[18] See 12 C.F.R. § 303.81(c).

[19] See 12 C.F.R. § 303.82(b)(1).

[20] 12 C.F.R. § 303.82(b)(2) establishes a number of rebuttable presumptions of “acting in concert.” Specifically, the following persons are presumed to be acting in concert: (i) a company and any controlling shareholder or management official of the company; (ii) an individual and one or more members of the individual’s immediate family; (iii) companies under common control or a company and each company it controls; (iv) two or more persons that have made, or propose to make, a joint filing related to the proposed acquisition under section 13 or 14 of the Securities Exchange Act of 1934 (15 U.S.C. § 78m or 78n), and the rules promulgated thereunder by the Securities and Exchange Commission; (v) a person and any trust for which the person serves as trustee or any trust for which the person is a beneficiary; and (vi) persons that are parties to any agreement, contract, understanding, relationship, or other arrangement, whether written or otherwise, regarding the acquisition, voting, or transfer of control of voting securities of a covered institution, other than through revocable proxies as described in C.F.R. § 303.84(a)(5). 12 C.F.R. § 303.82.

[21] Recently, the Federal Reserve published a final rule, which establishes and revises certain presumptions used to analyze whether one company controls another company for purposes of the BHC Act and Regulation Y. Our client alert on this final rule, is available at https://www.mofo.com/resources/insights/200219-federal-reserve-issues.html.

[22] Such other reports would be used to inform the FDIC as to the Covered Company’s: (1) financial condition; (2) systems for identifying, measuring, monitoring, and controlling financial and operational risks; (3) transactions with depository institution subsidiaries of the Covered Company; and (4) compliance with applicable provisions of the FDI Act and any other law or regulation.

[23] Such actions may include, for example, pledging assets, obtaining and maintaining a letter of credit from a third-party institution acceptable to the FDIC, and providing indemnification of the subsidiary industrial bank.

[24] The tax allocation agreement must expressly state that “an agency relationship exists between the Covered Company and the subsidiary industrial bank with respect to tax assets generated by such industrial bank, and further state[] that all such tax assets are held in trust by the Covered Company for the benefit of the subsidiary industrial bank and will be promptly remitted to such industrial bank. The tax allocation agreement must also provide that the amount and timing of any payments or refunds to the subsidiary industrial bank by the Covered Company should be no less favorable than if the subsidiary industrial bank were a separate taxpayer.”

[25] See FDIC Office of Inspector General, The FDIC’s Industrial Loan Company Deposit Insurance Application Process, Report No. 06-014 (July 2006), available at https://www.fdicoig.gov/publications/reports06/06-014-508.shtml (finding that in only one instance out of the 11 industrial banks reviewed by the FDIC Office of Inspector General did the FDIC require an industrial bank to maintain a majority of independent directors).

[26] Preamble to NPR, 85 Fed. Reg. at 17779.

[27] NPR at § 354.4(b), 85 Fed. Reg. at 17786.

[28] Preamble to NPR, 85 Fed. Reg. at 17779.

[29] Under the Depository Institution Management Interlocks Act and its implementing regulations, a management official of a depository institution is subject to various restrictions on serving at certain other unaffiliated depository institutions and depository holding companies within the same geographic area. See 12 U.S.C. § 3202. This condition would expand these restrictions by requiring approval for officers serving at bank affiliates and regardless of geographic area.

[30] See FDIC, Applying for Deposit Insurance: A Handbook for Organizers of De Novo Institutions at 27 (December 2019), available at https://www.fdic.gov/regulations/applications/depositinsurance/handbook.pdf (“The FDIC imposes certain conditions on all institutions that are granted deposit insurance. These conditions include minimum initial and ongoing capital for the three-year de novo period, fidelity bond insurance coverage, and financial statement audit requirements, among other conditions. The most common non-standard conditions address business plan changes, employment agreements and stock options plans, bank policies, and additional directors or officers. Non-standard conditions may also address corporate relationships, management authority and independence, and other areas, as appropriate. Most non-standard conditions do not exceed the three-year de novo period. However, certain conditions may be imposed for any length of time deemed necessary to mitigate risk.”); see also FDIC Office of Inspector General, The FDIC’s Industrial Loan Company Deposit Insurance Application Process, Report No. 06-014 (July 2006), available at https://www.fdicoig.gov/publications/reports06/06-014-508.shtml.

[31] Preamble to NPR, 85 Fed. Reg. at 17778.

[32] FDIC, FDIC Approves the Deposit Insurance Application for Square Financial Services, Inc., Salt Lake City, Utah (March 18, 2020), available at: https://www.fdic.gov/news/news/press/2020/pr20033.html.

[33] FDIC, FDIC Approves the Deposit Insurance Application for Nelnet Bank, Salt Lake City, Utah Area (March 18, 2020), available at: https://www.fdic.gov/news/news/press/2020/pr20034.html.

[34] Square, Inc., Square Receives Conditional FDIC Approval for Industrial Loan Charter Application for Deposit Insurance (March 18, 2020), available at: https://squareup.com/us/en/press/ilc-update; Nelnet, Inc., Nelnet Receives Approval to Establish Nelnet Bank (March 18, 2020), available at: http://www.nelnetinvestors.com/news/press-release-details/2020/Nelnet-Receives-Approval-to-Establish-Nelnet-Bank/default.aspx.

[35] The information in the chart was derived from the respective approval orders and the statement from Martin Gruenberg, member of the FDIC board, describing the parent company agreements and CALMAs into which Square, Inc. and Nelnet, Inc. have entered. See Martin J. Gruenberg, Deposit Insurance Application: Nelnet Bank (In Organization) (March 17, 2020), available at: http://www.nelnetinvestors.com/news/press-release-details/2020/Nelnet-Receives-Approval-to-Establish-Nelnet-Bank/default.aspx; Martin J. Gruenberg, Deposit Insurance Application: Square Financial Services, Inc., Salt Lake City, Utah (March 17, 2020), available at: https://www.fdic.gov/news/news/speeches/spmar1820b.pdf. Note that the parent company agreements and CALMAs for the Square, Inc. and Nelnet, Inc. approvals were not made public by the FDIC. The chart does not list all of the requirements applicable to Nelnet, Inc. and Square, Inc. in connection with the approvals.

[36] The CALMA related to Square, Inc.’s industrial bank subsidiary includes “extraordinary conditions” such as a leverage ratio requirement of 20%, and the requirement to establish and maintain a $50 million reserve deposit at an unaffiliated bank, among other things.

[37] The CALMA related to Nelnet, Inc.’s industrial bank subsidiary includes a leverage ratio requirement of 12%, and the requirement that Nelnet, Inc. establish and maintain a $40 million deposit account at its industrial bank subsidiary, among other things.