Letters to the Hill
Supporting Gillmor/Frank Amendment Limiting Interstate Branching Authority of Industrial Loan Companies (ILCs)
March 18, 2004
The Honorable Spencer Bachus
Dear Representative Bachus:
As a member of the Sound Banking Coalition, the Independent Community Bankers of America (ICBA) joins with the National Association of Convenience Stores, the National Grocers Association and the United Food and Commercial Workers International Union in support of the Gillmor/Frank amendment to section 401 of HR 1375, The Financial Services Regulatory Relief Act of 2003.
Section 401 would remove the prohibition on de novo interstate branching by national and state banks. Absent the Gillmor/Frank amendment, ICBA would be opposed to this provision because it will also extend de novo interstate branching authority to Industrial Loan Companies (ILCs). Granting such authority to ILCs raises serious policy issues. Section 401 has the effect of creating a parallel, unregulated banking structure that overturns the Gramm-Leach-Bliley Act's prohibition against the mixing of banking and commerce. The Gillmor/Frank amendment is a good first step toward addressing these issues.
Currently, large retailers or commercial firms can acquire an ILC (also sometimes called an industrial bank) because they are exempt entities under the Bank Holding Company Act. The BHCA exempts these entities from the definition of "bank," thus allowing them to be owned by any company (commercial or financial). An owner of an ILC, unlike the holding company of a commercial bank, is not subject to the restrictions of the BHCA and the attendant supervision and regulatory oversight by the Federal Reserve. Granting de novo branching authority to ILCs without the attendant supervisory authority of the Federal Reserve would be a dangerous expansion of the current ILC exemption.
The Gillmor/Frank amendment addresses the negative effects of granting ILCs de novo branching authority by placing limitations on the types of ILCs that may do so. Any company that derives more than 15% of its annual gross revenues from activities that are non-financial in nature will be prohibited from acquiring and operating an ILC with branches outside of the state granting the ILC charter. ILCs established prior to September 30, 2003 would have grandfather rights to branch across state lines, but an acquisition of the ILC or its corporate parent would terminate the branching rights and require divestiture of branches outside of the home state of the ILC.
The Gillmor/Frank amendment must be part of HR 1375. Without it, the bill will severely undermine the carefully constructed and balanced regulatory structure of the banking system. We urge your support of the Gillmor/Frank amendment to prevent the continued threat to the nation's long held policy of maintaining the separation of banking and commerce.
Camden R. Fine