ILCs and the Separation of Banking and Commerce

Position

  • Corporate conglomerates or other companies engaged in commercial activities should not be allowed to own full-service banks in violation of the longstanding U.S. policy of maintaining the separation of banking and commerce.
  • For safety and soundness reasons and to maintain the separation of banking and commerce, ICBA opposed the FDIC deposit insurance applications of SoFi Bank, Square Financial Services, Inc., and Nelnet Bank. These entities sought to hold industrial loan corporations (ILCs) charters issued by the state of Utah and operate on a nationwide basis.
  • The FDIC should impose a two-year moratorium on ILC deposit insurance applications.
  • Congress should close the ILC loophole because it not only threatens the financial system but creates an uneven playing field for community banks.

Background

The long-standing policy prohibiting affiliations or combinations between banks and non-financial commercial firms (such as Wal-Mart, Amazon, and Google) has served our nation well and was reaffirmed by the Gramm-Leach-Bliley Act (GLBA). Allowing large retail or technology conglomerates to own banks violates the U.S. policy of maintaining the separation of banking and commerce, jeopardizes the impartial allocation of credit, creates conflicts of interest and a dangerous concentration of commercial and economic power, and unwisely extends the federal safety net to commercial interests.

ICBA was the first national bank trade association to oppose Wal-Mart’s ILC application in 2005 and continues to exercise national leadership on banking and commerce separation with its opposition to the deposit insurance applications of SoFi Bank, Square Financial Services, Inc., and Nelnet Bank. ICBA has called for a two-year moratorium on ILC deposit insurance applications. All three of these applicants withdrew their FDIC applications, but Square has indicated that its application withdrawal is temporary and that it still intends to pursue FDIC deposit insurance for an ILC. All of these applicants have holding companies and affiliates that engage in diverse, non-financial, commercial activities and chose the unique Utah ILC charter to avoid the legal prohibitions and restrictions on commercial activities under the Bank Holding Company Act. The ILC charter also allows the holding company to avoid examination and supervision requirements that otherwise apply to all other parent companies of full-service banks.

ICBA believes that Square and all other applicants for deposit insurance through ILCs should be subject to the same restrictions and supervision that apply to any bank holding company of a community bank. Congress should close the ILC loophole because it threatens the financial system and creates an uneven playing field for community banks. There are thousands of fintech firms already engaged in financial activities, and it is not difficult to envision an Amazon or a Google joining their ranks. The integration of these technology and banking firms would not only result in an enormous concentration of financial and technological assets but would also pose immense conflicts of interest and privacy risks to our banking system.

Staff Contact: Chris Cole

Articles & Press Releases

Title Publication Date
ICBA Opposes Rakuten's ILC Application NewsWatch Today Article 08/22/19
ICBA Opposes Rakuten ILC Application Press Release, News 08/21/19
ICBA Opposes Rakuten ILC Application NewsWatch Today Article 07/29/19
ICBA Statement on Rakuten ILC Application Press Release, News 07/29/19
FDIC, Treasury Heads Seek Reg Framework That Fosters Innovation NewsWatch Today Article 04/25/19
Romero Rainey: No Free Pass for Fintechs NewsWatch Today Article 04/04/19
ICBA Commends Quarles for Warning on Big Tech Press Release, News 03/28/19
Romero Rainey: ILC Fashionable Charter for Skirting Regs NewsWatch Today Article 03/13/19
ILCs Put Consumers at Risk: ICBA White Paper NewsWatch Today Article 03/12/19
ICBA: Industrial Loan Companies Put Consumers at Risk Press Release 03/11/19
ICBA Statement on Nelnet’s Withdrawal of ILC Application Press Release 09/26/18
ICBA Statement on Noreika Speech about Banking and Commerce Press Release 11/08/17

Letters to Congress

Title Recipient Date

Letters to Regulators

Title Recipient Date
FDIC
08/21/2019
FDIC
01/18/2019
FDIC
07/31/2018
FDIC
10/10/2017

Testimonies

Title Committee Presenter Date

Summaries

Title Content Type Date