The Independent Community Bankers of America (ICBA) expressed support for a proposed rule by the Federal Deposit Insurance Corporation (FDIC) that would enhance oversight of industrial loan companies, or ILCs.
In a comment letter sent to the FDIC, ICBA commended the FDIC for its plan to strengthen its review of “shell” and “captive” ILCs — those that rely heavily on parent companies or serve primarily as a funding channel for commercial businesses. The FDIC, in its proposal, cites the consumer risks of financial institutions that are inextricably tied to parent organizations experiencing financial stress.
“By helping to address the risks posed by industrial banks, the FDIC’s proposal is a crucial step toward enhancing the integrity and stability of the nation’s banking system,” ICBA President and CEO Rebeca Romero Rainey said. “But make no mistake — policymakers should close the ILC loophole, which allows large commercial and tech firms to own banks while avoiding regulations that apply to other banks. The bipartisan Close the Shadow Banking Loophole Act would ensure any company that wishes to own a full-service bank is subject to the same oversight that applies to any other bank holding company.”
In conjunction with the comment letter, ICBA released new polling data showing consumer skepticism with the ILC charter, which ICBA called a legal loophole that allows full-service banks to avoid oversight.
According to the poll of U.S. adults, conducted by Morning Consult:
- 60 percent — including 64 percent of Democrats and 63 percent of Republicans — agree that the ILC charter creates a loophole for companies that are unwilling to comply with the regulations that otherwise apply to banks.
- 58 percent — including 64 percent of Democrats and 57 percent of Republicans — agree that allowing commercial companies to own banks without being subject to all banking regulations increases risks to the financial system.
- 57 percent — including 59 percent of Democrats and 55 percent of Republicans — say they would not trust their money and finances with an industrial bank owned by a large tech company.
In addition to creating conflicts of interest, ICBA said ILCs pose risks to the FDIC’s Deposit Insurance Fund, the financial system, and consumer privacy.
Currently there is a bill in Congress called Close the Shadow Banking Loophole Act (S. 3538), introduced by Sens. Sherrod Brown (D-OH) and John Kennedy (R-LA) and co-sponsored by Sens. Mike Braun (R-IN), Bob Casey (D-PA), Chris Van Hollen (D-MD), and Roger Wicker (R-MS). This bill 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.