More on ILCs - The Independent Community Bankers of America (ICBA)

More on ILCs

APRIL 4, 2003


More on ILCs

Wal-Mart or another commercial company can acquire an FDIC-insured industrial loan company (ILC) or an industrial bank because of a loophole in the Bank Holding Company Act that says these entities are not banks, and therefore can be owned by any company. An owner of an ILC, unlike the holding company of a commercial bank, is not subject to the activities restrictions of the Bank Holding Company Act (financial activities only, please) and the attendant supervision and regulatory oversight by the Federal Reserve.

ILCs were granted this loophole back in 1987 (when Congress closed the nonbank bank loophole), on the condition that the ILC either refrain from offering demand deposits withdrawable by check, or remain below $100 million in assets. As Chairman Greenspan recently noted, "[In 1987], ILCs were for the most part small local institutions that did not offer checking accounts and consequently were distinguishable from full service insured banks. In recent years, the insured deposits in a number of ILCs have grown into the multiple billions of dollars and ILCs have been acquired by a number of large corporations."

Wal-Mart already tried to buy a California industrial bank last year. ICBA and the California Independent Bankers were successful in thwarting Wal-Mart by securing passage of end-of-session legislation in the state allowing only financial companies and not commercial companies to own ILCs/industrial banks. Toyota currently has an industrial bank application pending in Nevada. Other ILC/industrial bank owners include Merrill Lynch, American Express, and BMW.

Unfortunately, the interest on business checking bill that passed the House this week, grants ILCs the ability to offer business NOW accounts (with interest), the functional equivalent of a business demand account. Thus, with this new product capability the powers of an ILC are expanded, making them even more attractive to commercial companies as a way to enter the banking business.