U.S. Sens. Elizabeth Warren (D-MA) and Andy Kim (D-NJ) asked Acting Federal Deposit Insurance Corporation (FDIC) Chair Travis Hill to re-impose a moratorium on new deposit insurance approvals until Congress can close an oversight loophole.
The moratorium would only apply to new deposit insurance applications submitted by commercially owned industrial loan companies (ILCs).Warren, the ranking member of the Senate Banking, Housing, and Urban Affairs Committee, and Kim said the FDIC and Congress previously imposed a moratorium on ILCs from 2006 to 2019 after proposals from retail giants like Walmart and Home Depot raised concerns about the concentration of corporate power.
“A moratorium would provide Congress with an opportunity to address a longstanding crack in the wall separating banking and commerce before it becomes a chasm,” the senators wrote. “Big Tech companies, automobile manufacturers, and large retailers have either filed, or have expressed interest in filing, applications with the FDIC. The separation of banking and commerce promotes competition across the economy, enhances financial stability, and protects our economic and political systems from concentrating too much power in the hands of a few corporate giants.”
The Senators said the lack of regulatory oversight over ILCs is concerning. ILCs are exempt from the definition of the word “bank” under the Bank Holding Company Act and are not supervised by any regulator on a consolidated basis. The lack of oversight means the activity of the parent company and all of the nonbank affiliates are out of sight of regulators, even though those entities can post risks to the bank and, in turn, to the Deposit Insurance Fund.
“The FDIC should impose a moratorium on reviewing new commercially owned ILC applications for federal deposit insurance. Congress should then use that pause to pass legislation closing the ILC loophole. If the FDIC does not impose a moratorium, and continues reviewing applications, it must rigorously adhere to the statute. Many ILC applications do not pass muster and must be denied under the law,” the senators said.