Washington, D.C. (July 18, 2017)—The Independent Community Bankers of America® (ICBA) today sent a letter to the FDIC commenting on the deposit insurance application of SoFi Bank, a wholly owned subsidiary of Social Finance, Inc. (SoFi). According to the application, SoFi Bank will be an industrial loan corporation (ILC) chartered by the state of Utah for the purposes of providing its customers an FDIC insured NOW account and a credit card product.
“For safety and soundness reasons and to maintain the separation of banking and commerce, the FDIC should deny SoFi Bank’s application and impose a moratorium on future ILC deposit insurance applications,” ICBA Executive Vice President and Senior Regulatory Counsel Christopher Cole wrote. “SoFi should be subject to the same restrictions and supervision that any other bank holding company of a community bank is subject to.”
ICBA also stressed in the letter that Congress should close the ILC loophole because it not only threatens the financial system but creates an uneven playing field for community banks.
ICBA’s main objection with the deposit insurance application is SoFi’s use of the ILC charter to avoid the legal prohibitions and restrictions under the Bank Holding Company Act (BHCA). The BHCA contains a comprehensive framework for the supervision of bank holding companies and their nonbank subsidiaries. Regulation under the BHCA entails consolidated supervision of the holding company by the Federal Reserve and restricts the activities of the holding company and its affiliates to those that are closely related to banking, such as extending credit and servicing loans, or performing appraisals of real estate and personal property. Because of a loophole in the law, companies that own ILCs are not subject to BHCA supervision. As a result, a company that owns an FDIC-insured ILC can engage in non-banking commercial activities and not be subject to consolidated supervision.
“Allowing corporate conglomerates to own banks not only violates the U.S. policy of maintaining the separation of banking and commerce, but 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,” Cole wrote.
ICBA also noted the previous concerns and warnings of regulators about ILCs, including those of the Federal Reserve and the Department of Treasury. Additionally, ICBA cited to legislative precedent including the moratorium that was imposed by the Dodd-Frank Act and the debate about mixing commerce with banking when the Gramm Leach Bliley Act was passed.
“For safety and soundness reasons and to affirm the long-standing policy prohibiting affiliations or combinations between banks and non-financial commercial firms, the FDIC should reimpose a moratorium on deposit insurance for ILCs similar to the moratorium that was imposed in 2006 and require SoFi Bank to apply for deposit insurance as a commercial bank and not as an ILC,” Cole wrote. “Congress should immediately address this issue and permanently close the ILC legal loophole before it is too late and we have huge commercial or technology firms like Amazon, Google or Wal-Mart owning FDIC-insured ILCs and operating them without adequate holding company supervision and without any restrictions on the types of activities in which the holding company or the ILC’s affiliates can engage.”
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