Highlights
The Federal Deposit Insurance Corporation (FDIC) approved a final rule that clarifies how it intends to treat applications to insure an industrial bank or industrial loan company (ILC) or to merge with or acquire control of an ILC.
ILC charters are sought because owning or controlling an ILC is the only way for nonfinancial services companies, which are prohibited under the federal Bank Holding Company Act (BHCA) from owning or controlling a bank, to offer banking services and products (including deposit products) to their customers.
The final rule provides that, in any case where approval of such an application will result in a nonfinancial company owning or controlling an insured ILC and thus not being subject to the BHCA or to consolidated supervision by the Federal Reserve Board as provided in the BHCA: 1) the approval must include certain conditions and commitments and 2) the company and the ILC must have entered into one or more written agreements with the FDIC.
What Happened
On December 15, 2020, the Federal Deposit Insurance Corporation (FDIC) adopted a final rule, effective April 1, 2021, setting forth conditions, commitments, and requirements for the approval of deposit insurance applications, changes in control, and merger transactions in which an insured industrial bank or industrial loan company (ILC) would become a subsidiary of a company not subject to consolidated supervision from the Federal Reserve Board that would directly or indirectly control the ILC as a result of such transaction (Covered Company). The final rule largely adopted most of the provisions from the FDIC’s March 17, 2020 notice of proposed rulemaking,
1 with a few substantive changes. Overall, the final rule expanded the regulatory framework for the FDIC’s approval process by requiring the following obligations of ILCs and Covered Companies.
On December 15, 2020, the Federal Deposit Insurance Corporation (“
Final Rule”) setting forth standards to apply to controlling shareholders of industrial banks that are not subject to consolidated supervision by the Board of Governors of the Federal Reserve System (“
Federal Reserve”). The Final Rule is substantially similar to the FDIC’s proposal announced March 17, 2020 (“
Proposed Rule”), and will take effect on April 1, 2021.
The Final Rule is prospective in the sense that it will not apply to an industrial bank that before the effective date is a subsidiary of a company that is not subject to consolidated supervision by the Federal Reserve.
The Final Rule caps a spate of recent developments in the chartering and regulation of industrial banks and the supervision of their shareholders. On March 17, 2020, the same day it announced the Proposed Rule, the FDIC approved applications for deposit insurance submitted by Square, Inc. and Nelnet, Inc., paving the w