BPI Comments on FDIC’s Industrial Loan Company Request for Information

Ladies and Gentlemen:

The Bank Policy Institute^[1] is writing in response to the Federal Deposit Insurance Corporation's "Request for Information on Industrial Banks and Industrial Loan Companies and Their Parent Companies."^[2] ILCs offer banking products and services functionally indistinguishable from those other banks provide. However, the parents of ILCs are exempt from the requirements of the Bank Holding Company Act.^[3] Therefore, they can avoid regulation and supervision by the Board of Governors of the

Federal Reserve System and need not confine their activities to those "closely related to banking."^[4] Thus, the ILC exemption effectively serves as a loophole through which commercial firms can own insured banks but not be subject to the federally mandated regulatory and supervisory framework intended to promote a safe, sound and stable U.S. banking system. The loophole also violates the longstanding U.S. policy that banking and commerce should remain separate. Therefore, as we have long advocated,

Congress should close this loophole, and, until such time, the FDIC should not issue deposit insurance to any ILC applicant.

We urge the FDIC to consider the outsized risks to the deposit insurance fund and financial stability created by authorizing ILC charters that permit parent companies to engage in commercial activities. In particular, the FDIC should not proceed with any such charters without first studying and reporting publicly on whether it has an adequate number of sufficiently trained and qualified examiners to identify and address these supervisory risks. ILCs with commercial parents can present risks that are far more varied and complex than those associated with traditional banks, and the bank regulators

naturally lack experience in assessing how commercial risks may affect the DIF and financial stability. Questions about the FDIC's ability to examine commercial ILCs effectively are even more pressing in light of the FDIC's increasing focus away from complex institutions.^[5]

Closing the ILC loophole would not only protect the DIF, it would also be consistent with the foundational precept on which financial regulation in the United States is based: namely, that banking and commerce should remain separate. The risks of combining banking and non-financial businesses are a longstanding concern of US public policy. For example, the Bank Holding Company Act ("BHCA") limits the affiliation of banks and non-financial businesses by generally prohibiting bank holding companies

from owning more than five percent of the voting stock of non-financial companies, with limited exceptions. This prohibition addresses a number of potential problems, including:

• A concentration of economic power;
• Less stringent credit standards for and higher risk exposures to affiliates;
• Less attractive credit terms to unaffiliated non-financial businesses; and
• Other similar conflicts of interest.

These adverse effects also could reduce the availability of credit to unaffiliated businesses and create vulnerabilities for the DIF. Under the BHCA, the activities of affiliates of a bank are subject to "consolidated supervision."

Furthermore, the ILC exemption was not intended to provide an avenue for commercial, retail, or tech firms to enter into banking. The ILC industry has changed dramatically since 1987 when this statutory exemption was created as part of the Competitive Equality in Banking Act ("CEBA"). At that time, the size, nature, and powers of ILCs were limited.^[6]

Today, however, the loophole allows large national and international financial and commercial firms to acquire an ILC, which is an FDIC-insured depository institution, and gain access to the federal safety net available to insured depository institutions. Indeed, dramatic changes have occurred with ILCs that make them a particularly attractive avenue for firms to gain access to the federal safety net without being subject to the activity restrictions and prudential framework that Congress established for the corporate owners of other full-service commercial banks. In the relatively recent past, commercial firms and tech companies like Wal-Mart, Home Depot, and Rakuten have sought to access the benefits offered through FDIC insurance and access to the federal safety net by the establishment or acquisition of an ILC.

These firms are subject to market and other incentives that are distinct from, and may be in conflict with, serving as a source of financial strength for a subsidiary bank.

To read the full comment letter, please click here, or click on the download button below.

[1] The Bank Policy Institute is a nonpartisan public policy, research and advocacy group that represents universal banks, regional banks and the major foreign banks doing business in the United States. The Institute produces academic research and analysis on regulatory and monetary policy topics, analyzes and comments on proposed regulations and represents the financial services industry with respect to cybersecurity, fraud and other information security issues.

[2] 90 Fed. Reg. 34271 (July 21, 2025).

[3] 12 U.S.C. § 1841(c)(2)(H) ("The term "bank" does not include […] [a]n industrial loan company, industrial bank, or other similar institution[.]")

[4] 2 U.S.C. § 1843(k)(4)(F). BPI has long recognized that parents of ILCs that are subject to consolidated supervision by the Federal Reserve do not pose additional risks to the system and need not be included in any limitation on ILC parent companies. These include both bank holding companies and foreign banking organizations with operations in the United States that are already regulated as bank holding companies under the International Banking Act.

[5] Only two of the top 40 U.S. banks are primarily supervised by the FDIC (link).

[6] ILCs were first established in the early 1900s to make small loans to industrial workers and, until recently, were not generally permitted to accept deposits or obtain deposit insurance. At the time of CEBA's enactment, most ILCs were small, locally owned institutions that had only limited deposit-taking and lending powers under state law. At the end of 1987, the largest ILC had assets of only approximately $410 million, and the average asset size of all ILCs was less than $45 million. The relevant states also were not actively chartering new ILCs. At the time CEBA was enacted, for example, Utah had only 11 state-chartered ILCs, and had a moratorium on the chartering of new ILCs. Moreover, interstate banking restrictions and technological limitations made it difficult for institutions chartered in a grandfathered state to operate a retail banking business regionally or nationally.