The Independent Community Bankers of America (ICBA) has expressed its support for a proposed rule by the Federal Deposit Insurance Corporation (FDIC) aimed at enhancing oversight of industrial loan companies (ILCs). This announcement was accompanied by polling data revealing consumer skepticism regarding the ILC charter, which is perceived as a loophole allowing full-service banks to bypass certain regulatory oversights.

In a comment letter, ICBA praised the FDIC's initiative to strengthen its review of "shell" and "captive" ILCs. These entities often rely heavily on parent companies or primarily serve as funding channels for commercial businesses. The FDIC proposal highlights potential consumer risks associated with financial institutions closely tied to parent organizations under financial stress.

Rebeca Romero Rainey, ICBA President and CEO, stated, “By helping to address the risks posed by industrial banks, the FDIC’s proposal is a crucial step toward enhancing the integrity and stability of the nation’s banking system.” She emphasized that policymakers should close the ILC loophole, which allows large commercial and tech firms to own banks while avoiding regulations applicable to other banks. She also mentioned that “the bipartisan Close the Shadow Banking Loophole Act would ensure any company that wishes to own a full-service bank is subject to the same oversight that applies to any other bank holding company.”

The increased regulatory scrutiny from the FDIC aligns with recent ICBA polling showing public concern over the ILC loophole. According to Morning Consult's survey of U.S. adults:

- 60% agree that the ILC charter creates a loophole for companies unwilling to comply with standard banking regulations.

- 58% believe allowing commercial companies to own banks without being subject to all banking regulations increases financial system risks.

- 57% would not trust their finances with an industrial bank owned by a large tech company.

The ICBA's comprehensive white paper outlines how the ILC charter enables parent companies to own and operate FDIC-insured banks while evading Bank Holding Company Act regulations applicable to traditional banks. This situation can lead to conflicts of interest and poses risks related to consumer privacy and financial stability.

Congress is actively working on closing this loophole through legislation such as the Close the Shadow Banking Loophole Act (S. 3538). Introduced by Senate Banking Committee Chairman Sherrod Brown (D-Ohio) and Sen. John Kennedy (R-La.), it has co-sponsors including Sens. Mike Braun (R-Ind.), Bob Casey (D-Pa.), Chris Van Hollen (D-Md.), and Roger Wicker (R-Miss.). The act would require companies acquiring an ILC to be subject to consolidated supervision by the Federal Reserve akin to other bank holding companies.

Further details on today's ICBA comment letter can be found on their website.

The Independent Community Bankers of America aims to foster an environment where community banks thrive through advocacy, education, and innovation. More information about their initiatives can be accessed at icba.org.