Community bankers say the FDIC should deny Square Financial’s industrial loan corporation application

The Independent Community Bankers of America (ICBA) called on the Federal Deposit Insurance Corporation (FDIC) to deny Square Financial Services Inc.’s federal deposit-insurance application as an industrial loan corporation (ILC).

ICBA also requested that the FDIC impose an immediate two-year moratorium on ILC deposit-insurance applications.

In a letter to the FDIC, ICBA officials noted that Square’s application as an ILC is designed to avoid legal prohibitions and restrictions under the Bank Holding Company Act.

“Square should be subject to the same restrictions and supervision that any other bank holding company of a community bank is subject to,” ICBA Executive Vice President and Senior Regulatory Counsel Christopher Cole wrote. “Furthermore, Congress should close the ILC loophole because it not only threatens the financial system but creates an uneven playing field for community banks.”

Denying the application and imposing a moratorium would promote safety and soundness in the commercial banking sector and maintain the separation of banking and commerce, ICBA said.

Square and its affiliates already engage in a diverse set of commercial activities, ICBA said. Granting Square an ILC charter would allow it to engage in both banking and commercial activities without being subject to consolidated supervision.

ICBA would like to see Congress permanently close the ILC loophole. The integration of massive technology and banking firms would result in an enormous concentration of financial and technological assets while posing significant conflicts of interest and privacy concerns.

ICBA previously expressed opposition to the recent deposit-insurance application of SoFi Bank, also as an industrial loan corporation.