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Allowing large corporations to form industrial loan companies would magnify risks in the financial system and could ultimately give big tech firms access to information about every aspect of a consumer’s life, according to a new Washington Post article (subscription required).
Details: The article notes that community banks have long opposed ILC formation, with critics saying industrial banks are the result of a legal loophole because the parent company can benefit from its bank’s access to the federal safety net—such as emergency loans from the Federal Reserve—without facing regulatory supervision of the entire enterprise.
Statement: In the article, ICBA’s Mickey Marshall said: “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.”
ICBA Advocacy: ICBA recently told the Chicago Regional FDIC that it strongly opposes GM’s application to form an ILC because it threatens the Deposit Insurance Fund and doesn’t serve the convenience and needs of the community.
Closing the Loophole: ICBA details the evolution of the ILC charter in a comprehensive white paper. ICBA will continue to advocate for legislation that requires companies that acquire an ILC to be subject to the same consolidated supervision by the Federal Reserve as any other bank holding company.
More Scrutiny: Marshall recently told The Banker (subscription required) that traditional lenders are worried about the implications of larger tech firms such as Amazon or Meta effectively entering the banking space through the back door and getting access to consumers’ spending data.