ICBA, others oppose Albert Corporation’s application to form an ILC

ICBA and the Bank Policy Institute voiced opposition to Albert Corporation’s application to form an industrial loan company, saying it could pose a significant and unnecessary risk to the Deposit Insurance Fund and the broader financial system.

Details: In a joint letter to the FDIC, ICBA and BPI said:

• The FDIC should pause processing ILC deposit insurance applications until the agency provides guidance regarding its approach to considering those applications.

• Albert’s application raises significant questions regarding certain factors the FDIC is required to consider in evaluating deposit insurance applications.

• An ILC significantly reliant on an affiliate presents heightened risk of noncompliance with important laws governing affiliate transactions, which are essential to protect the DIF.

• The FDIC must ensure that ILCs abide by the anti-tying restrictions applicable to banks.

Background: Albert, a company founded in 2015 that offers financial tools and services online, proposes to establish Albert Bank as a wholly owned subsidiary to provide banking services directly to Albert users.

ICBA View: ICBA believes ILCs present outsized risks to the Deposit Insurance Fund and consumers due to their exemption from consolidated supervision by the Federal Reserve under the Bank Holding Company Act and ownership by non-financial parent companies.

Loophole Background: A loophole in the Bank Holding Company Act allows commercial and fintech companies to own or acquire ILCs chartered in a handful of states without being subject to federal consolidated supervision, leaving a dangerous gap in safety and soundness oversight and introducing unnecessary systemic risk into the banking system.

ICBA Advocacy:

• ICBA and BPI recently voiced opposition to Klarna’s ILC application.

• ICBA and state banking associations recently met with FDIC Chairman Travis Hill to discuss concerns about ILCs.

• After the FDIC in May approved a deposit insurance application submitted by Stellantis Financial Services to establish a Utah-chartered industrial loan company, ICBA expressed serious concern with the approval, citing the risks posed by the regulatory loophole.

• ICBA and 38 state banking associations recently urged the FDIC to reconsider its approval of Edward Jones’s ILC application, noting the St. Louis-based investment firm has more than 16,000 physical locations across North America that could function as de facto bank branches.

• ICBA last year published a white paper detailing why policymakers should close the ILC loophole, which allows ILCs and their parent companies to skirt regulatory oversight.

• ICBA in September told the FDIC that it has a statutory duty to reject ILC applications that pose undue risks to the DIF.

• ICBA continues to strongly support the Close the Shadow Banking Loophole Act, legislation introduced by Senate Banking Committee members John Kennedy (R-La.) and Andy Kim (D-N.J.).