Industrial loan company loophole avoids supervision,
violates long-standing policy
Washington, D.C. (Jan. 13, 2021) — The Independent Community Bankers of America (ICBA) today called on the FDIC to reject GM Financial Bank's deposit insurance application as an industrial loan company, which would allow the company to skirt regulatory oversight and violate U.S. policy separating banking and commerce.
In a letter to the FDIC, ICBA said the problem is illustrated by General Motors's previous failed incursion into banking, which led to the collapse of GMAC, contributed to the 2008 financial crisis, and required three rounds of taxpayer-funded bailouts to save GM. ICBA wrote that while GMAC itself may not have been too big to fail, policymakers deemed it too important to GM to fail—proving itself a case study in the dangers of commercial-financial conglomerates.
"While ICBA and community bankers continue calling on Congress to close the industrial loan company loophole due to its risk to the financial system, GM's attempt to return to banking following the failure and bailout of GMAC is particularly egregious," ICBA President and CEO Rebeca Romero Rainey said today. "Any company that wishes to own a full-service bank should be subject to the same restrictions and supervision that apply to any other bank holding company."
Like the ILC application from Rakuten — the tech giant known as "the Amazon of Japan" — and other major commercial firms, GM is applying as an ILC to avoid the legal restrictions of the Bank Holding Company Act, leaving a dangerous gap in safety and soundness oversight.
In a comprehensive white paper, ICBA details the transformation of the ILC charter into the fashionable charter of choice for firms seeking to benefit from the federal safety net while avoiding oversight, which poses risks to the FDIC's Deposit Insurance Fund and the financial system more broadly.
ICBA will continue working with the FDIC and Congress to address the ILC loophole and maintain the separation of banking and commerce.
About ICBA
The Independent Community Bankers of America creates and promotes an environment where community banks flourish. ICBA is dedicated exclusively to representing the interests of the community banking industry and its membership through effective advocacy, best-in-class education, and high-quality products and services.
With nearly 50,000 locations nationwide, community banks constitute 99 percent of all banks, employ more than 700,000 Americans and are the only physical banking presence in one in three U.S. counties. Holding more than $5 trillion in assets, over $4.4 trillion in deposits, and more than $3.4 trillion in loans to consumers, small businesses and the agricultural community, community banks channel local deposits into the Main Streets and neighborhoods they serve, spurring job creation, fostering innovation and fueling their customers’ dreams in communities throughout America. For more information, visit ICBA’s website at www.icba.org.
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