FDIC IMPOSES 6 MONTH MORATORIUM ON INDUSTRIAL LOAN COMPANY APPLICATIONS
In response to concerns expressed about pending applications regarding industrial loan companies (ILCs), the Federal Deposit Insurance Corporation has imposed a six-month moratorium on FDIC action to accept, approve or deny any application for deposit insurance submitted to the FDIC by, or on behalf of, any proposed or existing ILC, or accept, disapprove or issue a letter of intent not to disapprove, any change in bank control notice submitted to the FDIC with respect to any ILC.
In the Notice of the Moratorium the FDIC explained that the ILC industry has grown and evolved since its inception in 1910, and that growth and evolution appears to be continuing in ways that may not have been anticipated at the time Competitive Equality Banking Act was enacted in 1987 and even at the time that the Gramm-Leach- Bliley Act was enacted in 1999, when Congress last addressed the issue of mixing banking and commerce.
In the notice the FDIC cited to a 2005 GAO report that concluded that while “from an operations standpoint [ILCs] do not appear to have a greater risk of failure than other types of depository institutions,” commercial firm ownership of ILCs constituted a mixing of banking and commerce and created an unlevel playing field when compared to the holding companies of banks and thrifts subject to consolidated supervision. The GAO report stated that the FDIC’s examination, regulations and supervision authorities may not adequately protect the bank and the insurance fund when and ILC is held by a commercial firm.
The FDIC indicated that it received more than 13,000 comment letters and heard substantial testimony in three days of hearings on the proposed Wal-Mart Bank’s deposit insurance application. According to the FDIC most of the comments and testimony expressed opposition to the granting of deposit insurance to the Wal-Mart application. Many comments specifically raised concerns over the risk to the deposit insurance fund posed by an ILC that has a parent without a consolidated federal supervisor or in which an ILC is owned or affiliated with a commercial business. The FDIC also referred to concerns expressed by Congress.
In issuing the moratorium the FDIC stated that from a safety and soundness standpoint, ILCs have not presented the FDIC thus far with any greater risk of failure than other types of insured depository institutions and the FDIC’s current statutory authority has proved adequate to supervise ILCs. However, as a result of the continued evolution of the ILC industry and the various issues and concerns expressed regarding the ILC industry mentioned above, the FDIC believes it is appropriate to further evaluate (i) industry developments, (ii) the various issues, facts and arguments raised with respect to the ILC industry, (iii) whether there are emerging safety and soundness issues or policy issues involving ILCs or other risks to the insurance fund, and (iv) whether statutory, regulatory or policy changes should be made in the FDIC’s oversight of ILCs in order to protect the deposit insurance fund.
The FDIC stated that during the moratorium the FDIC Board of Directors may exclude from the moratorium any particular application or notice if it determines that (i) the moratorium would present a significant safety and soundness risk to any FDIC-insured institution or a significant risk to the deposit insurance fund or (ii) failure to act would otherwise impair the missions of the FDIC.
Elizabeth Anstaett and Michael Tomkies