ICBA expressed support for an FDIC proposed rule that would enhance oversight of industrial loan companies.
Details: In a comment letter, ICBA commended the FDIC for proposing to strengthen its review of “shell” and “captive” ILCs, including those that rely heavily on parent companies or serve primarily as a funding channel for commercial businesses. The FDIC proposal cites the consumer risks of financial institutions that are inextricably tied to parent organizations experiencing financial stress.
Public View: In conjunction with the letter, ICBA released new polling data showing consumer skepticism with the ILC charter, which allows full-service banks to skirt oversight and violate U.S. policy separating banking and commerce. According to the polling of U.S. adults conducted by Morning Consult, 60% agree that the ILC charter creates a loophole for companies that are unwilling to comply with the regulations that otherwise apply to banks.
Media Coverage: ICBA’s Mickey Marshall last week was quoted in a PYMNTS article on the economic risks ILCs pose. “A bank should be a neutral arbiter of credit,” he said. “But when a bank is owned by a commercial company, it is incentivized to lend to customers of its commercial parent to drive sales, and this inevitably leads to riskier loans getting made, which puts the institution at risk of failure.”
Legislative Action: The ICBA-advocated Close the Shadow Banking Loophole Act (S. 3538) would require companies that acquire an ILC to be subject to the same consolidated supervision by the Federal Reserve as any other bank holding company. Community bankers can urge their senators to pass the legislation using ICBA’s Be Heard grassroots action center.
Background: As detailed in ICBA’s comprehensive white paper, the ILC charter allows applicants’ parent companies to own and operate FDIC-insured banks while evading Bank Holding Company Act regulations that apply to other traditional banks. In addition to creating conflicts of interest, the paper details how the commercial activities of ILC applicants pose risks to the FDIC's Deposit Insurance Fund, the financial system, and consumer privacy.
