On March 17, 2020, the Federal Deposit Insurance Corporation (“FDIC”) proposed for public comment a rule that would clarify and in some ways strengthen its regulation of parent companies of industrial loan companies and industrial banks (collectively, “ILCs”) through the FDIC’s approval authority for deposit insurance, merger, and change in control applications.
The following day, the FDIC approved applications for deposit insurance for two de novo ILCs – Square Financial Services, Inc. (“Square Bank”) and Nelnet Bank. These two developments represent significant milestones in the FDIC’s approach to ILC applications and end the FDIC’s long-running moratorium on approval of new charters, mergers, or changes in control for ILCs.
ILCs enjoy many of the same banking powers of traditional commercial banks, but ownership of an ILC does not subject a parent company to consolidated Federal Reserve Board (“FRB”) supervision and the activity limitations associated with being a bank holding company (“BHC”). Historically, the FDIC has exercised indirect supervisory authority over ILC parent companies through written agreements entered into as a condition of the FDIC’s approval of deposit insurance, merger, and change in control applications.
The Proposed Rule would codify many FDIC practices applied before the moratorium, and aims to provide transparency and consistency in FDIC supervision of non-BHC parent companies of ILCs, in line with FDIC Chairman Jelena McWilliams’ stated priority of increasing transparency and opportunities for public input by relying on formal rulemakings subject to notice and comment.
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