ICBA - News - News Release - ICBA Applauds GAO Report On ILCs<br><i>GAO Adds Its Voice To Growing Concern Over Mixing Banking and Commerce</i>
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ICBA Applauds GAO Report On ILCs
GAO Adds Its Voice To Growing Concern Over Mixing Banking and Commerce

Washington, D.C. (Sept. 22, 2005) -- The Independent Community Bankers of America applauds a study released today by the Government Accountability Office (GAO) that suggests industrial loan companies (ILCs) pose a greater threat to the bank insurance fund than other institutions operating in a holding company structure, and calls on Congress to consider the risks of allowing commercial firms to own ILCs.

“The separation of banking and commerce is a pillar of our economic strength and financial safety and soundness for our insured deposits,” said Camden R. Fine, ICBA president and CEO.   “We are pleased that GAO recognizes this. ICBA continues to advocate for safety and soundness of the insurance fund by having banks focus on banking and commercial firms focus on commerce.”

“The GAO report rightfully points out several reasons why Congress should carefully reconsider the growing risks to the banking system from commercial firms owning and operating FDIC-insured ILCs,” added Fine.

ICBA strongly believes that ILCs owned by commercial firms constitute a dangerous threat to the nation’s financial system. Mixing banking and commerce causes excessive concentration of economic power, jeopardizes the impartial allocation of credit, and extends the federal safety net where it was not intended.

The GAO report, titled “Recent Asset Growth and Commercial Interest Highlight Differences in Regulatory Authority,” cautioned Congress against continuing to allow commercial firms to circumvent longstanding federal law barring the mixing of banking and commercial activities. The report also questions the adequacy of ILC regulation, noting that the FDIC has “less extensive authority to supervise ILC holding companies than the consolidated supervisors of bank and thrift holding companies . . ..”

In response, former banking committee Chairman Rep. Jim Leach, (R-Iowa) today introduced a bill to bring ILCs under regulation of the Bank Holding Company Act (BHC).   ICBA supports the Leach bill because it closes the ILC loophole.

ILCs are hybrid financial institutions chartered by only a handful of states that operate outside the reach of the BHC, which keeps banking and commerce separate to assure the safety and soundness of the nation’s financial system.

The GAO report highlighted the rapid growth of ILC assets in recent years and noted that ILCs stand among the country’s largest and most complex financial institutions. The GAO found that:

  • ILCs pose more risk of loss to the bank insurance fund than other insured depository institutions operating in a holding company because FDIC has less authority to regulate ILC holding companies than bank and thrift holding companies.
  • FDIC authority over large ILC holding companies has not been tested “during times of economic stress.”

Wal-Mart Stores Inc. is seeking to charter an ILC in the state of Utah and has an application pending before the FDIC to obtain federal deposit insurance. ICBA vigorously opposes Wal-Mart’s ILC charter application as an unwise and unprecedented breach in the separation of banking and commerce. ICBA urges Congress to quickly close the ILC loophole to preserve the separation of banking and commerce.

For the full text of the GAO report on ILCs, go to www.gao.gov. For more information on Wal-Mart’s efforts to charter an ILC application, visit ICBA’s website at www.icba.org.