BPI Calls on FDIC to Apply Regulatory Safeguards to ILCs to Protect Consumers and Mitigate Risk to the Economy

Washington, D.C. – As a result of a statutory loophole, ILCs and ILC parent companies remain free from consolidated and comprehensive supervision and, therefore, pose unique risks to the economy and the Deposit Insurance Fund, the Bank Policy Institute (BPI) argued in a comment letter submitted today to the Federal Deposit Insurance Corporation (FDIC) in response to a notice of proposed rulemaking issued by the agency in March. The letter urges FDIC to issue a moratorium on processing new ILC applications — a solution previously proposed in a letter submitted by BPI, consumer and civil rights groups on March 15, 2020 — or, at a minimum, the agency should establish robust prudential and regulatory safeguards for ILCs and their parent companies that correspond to the company’s size and business model. These safeguards should be comparable to the Federal Reserve’s supervision of bank holding companies (BHCs) and savings and loan holding companies, meaning that they should preserve the separation of banking and commerce by restricting ILC parent companies from engaging in non-financial activities; apply minimum capital and liquidity requirements on a consolidated basis to ILC parent companies; and require examinations of and impose reporting requirements on ILC parent companies and their subsidiaries.

“If BigTech and multinational commercial firms want to begin offering payments and other financial products and benefit from a federal safety net – a practice that represents a complete reversal of FDIC policy in place for nearly 14 years – they should be subjected to the same rules that apply to banks,” stated BPI President & CEO Greg Baer.

While ILCs offer banking products and services that are functionally indistinguishable from those offered by commercial banks, these companies and their parent companies are not subject to the same consolidated federal supervision and regulation framework as bank holding companies and savings and loan holding companies. ILCs were established in the early 1900s to make small loans to industrial workers, but statutory loopholes created in 1987 through the passage of the Competitive Equality in Banking Act enabled large commercial firms and technology companies to acquire FDIC-insured ILCs. Despite the expanded use of ILCs made possible by this loophole, equitable regulatory treatment has substantial support. According to a Morning Consult survey conducted on behalf of BPI, 78% of respondents agree that if technology companies were to offer financial services to customers, technology companies should be regulated the same as, or more than banks.

In addition to establishing robust prudential safeguards, BPI’s comment letter recommends that ILC parent companies comply with established financial privacy and information security requirements across all of their financial and non-financial affiliates and activities, that ILC parent companies should have a program for identifying and limiting covered transactions between the ILC and the parent company or the ILC and other affiliates, and that the FDIC’s final rule should use definitions established under the Bank Holding Company Act to determine a whether a company controls an ILC for the definition of a Covered Company, as opposed to the definition established under the Change in Bank Control Act.


About the Bank Policy Institute

The Bank Policy Institute (BPI) is a nonpartisan public policy, research and advocacy group, representing the nation’s leading banks and their customers. Our members include universal banks, regional banks and the major foreign banks doing business in the United States. Collectively, they employ almost 2 million Americans, make nearly half of the nation’s small business loans, and are an engine for financial innovation and economic growth.