CBA Comment Letter re FDIC Parent Companies of Industrial Banks and Industrial Loan Companies NPR

Dear Mr. Feldman:


The Consumer Bankers Association (“CBA”) appreciates the opportunity to respond to the Federal Deposit Insurance Corporation’s (“the FDIC” or “the agency”) notice of proposed rulemaking (“the proposed rule” or “the current proposal”) regarding parent companies of industrial banks and industrial loan companies (“ILCs”).  The future of the ILC charter is of particular interest to CBA because our association was formed in 1919 as the Morris Plan Bankers Association for the purpose of promoting America’s first industrial banks, then known as Morris Plan Banks. Today, CBA is the only national trade association focused exclusively on retail banking; our 67 member banks employ nearly 2 million Americans, extend roughly $3 trillion in consumer loans, and hold assets totaling $14.5 trillion or 79% of all bank holding company, bank and thrift assets in the United States.   While the vast majority of our current members are not ILCs, CBA remains committed to the need and purpose of consumer banking that inspired the nation’s first industrials.


CBA’s history and membership reflect our support for diverse business models and charter choice, including the ILC charter, to foster a competitive financial system.  However, evolutions in the financial marketplace have allowed the ILC charter to stray from its simple beginnings of providing small loans to industrial workers.  Our members are especially concerned the rise in non-financial commercial companies (“commercial companies” or “commercial parents”) seeking ownership of ILCs may facilitate perilous growth of shadow banking and threaten the Deposit Insurance Fund (“the DIF”) and the safety and soundness of the traditional banking system.  The FDIC’s proposed strategies and safeguards for overseeing commercial companies, while well-intended, may in practice be inadequate substitutes for the consolidated supervision that applies to and is required of banks and their holding companies.


Although ILCs commonly support specialty finance operations for parent companies engaged in activities that have a strong nexus to finance (“financial companies” or “financial parents”), ILCs may also be leveraged by the largest commercial or retail enterprises (including global mega-conglomerates) to avoid the laws governing well-regulated banks and their holding companies.  Through this rulemaking, the FDIC should ensure commercial companies cannot use the ILC charter as a conduit into the banking system and federal safety net while engaging in activities that have always been off limits for regulated banks and their holding companies.  Accordingly, we urge the FDIC to only finalize a rule that honors the cardinal tenet of American banking: the mixing of banking and commerce is impermissible.


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