Parent Companies of Industrial Banks and Industrial Loan Companies

FEDERAL DEPOSIT INSURANCE CORPORATION <CFR>12 CFR Part 354</CFR> <RIN>RIN 3064-AF88</RIN> <SUBJECT>Parent Companies of Industrial Banks and Industrial Loan Companies</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Federal Deposit Insurance Corporation. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking. <SUM> <HD SOURCE="HED">SUMMARY:</HD> The Federal Deposit Insurance Corporation (FDIC) is seeking comments on proposed amendments to its regulation governing parent companies of industrial banks and industrial loan companies. This regulation, which was adopted in December 2020, requires certain conditions and written commitments in situations that would result in an industrial bank or industrial loan company becoming a subsidiary of a company that is not subject to consolidated supervision by the Federal Reserve Board. The proposed amendments would revise the definition of “Covered Company” to include conversions involving a proposed industrial bank or industrial loan company under section 5 of the Home Owners' Loan Act, or other transactions as determined by the FDIC; ensure that a parent company of an industrial bank subject to a change of control, or a parent company of an industrial bank subject to a merger in which it is the resultant entity, would be subject to the FDIC's regulation; and provide the FDIC the regulatory authority to apply the regulation to other situations where an industrial bank would become a subsidiary of a company that is not subject to Federal consolidated supervision. Additionally, the proposed amendments would clarify the relationship between written commitments and the FDIC's evaluation of the relevant statutory factors. The proposed amendments also would set forth additional criteria that the FDIC would consider when assessing the risks presented to an industrial bank or industrial loan company by its parent company and any affiliates and evaluating the institution's ability to function independently of the parent company and any affiliates. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> Comments will be accepted until October 11, 2024. </EFFDATE> <HD SOURCE="HED">ADDRESSES:</HD> Interested parties are invited to submit written comments, identified by RIN 3064-AF88, by any of the following methods: • <E T="03">Agency Website: https://www.fdic.gov/resources/regulations/federal-register-publications/</E> . Follow the instructions for submitting comments on the agency website. • <E T="03">Email: comments@fdic.gov</E> . Include RIN 3064-AF88 in the subject line of the message. • <E T="03">Mail:</E> James P. Sheesley, Assistant Executive Secretary, Attention: Comments—RIN 3064-AF88, Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429. • <E T="03">Hand Delivery:</E> Comments may be hand delivered to the guard station at the rear of the 550 17th Street NW building (located on F Street NW) on business days between 7 a.m. and 5 p.m. • <E T="03">Public Inspection:</E> Comments received, including any personal information provided, may be posted without change to <E T="03">https://www.fdic.gov/resources/regulations/federal-register-publications/</E> . Commenters should submit only information that the commenter wishes to make available publicly. The FDIC may review, redact, or refrain from posting all or any portion of any comment that it may deem to be inappropriate for publication, such as irrelevant or obscene material. The FDIC may post only a single representative example of identical or substantially identical comments, and in such cases will generally identify the number of identical or substantially identical comments represented by the posted example. All comments that have been redacted, as well as those that have not been posted, that contain comments on the merits of the proposed rule will be retained in the public comment file and will be considered as required under all applicable laws. All comments may be accessible under the Freedom of Information Act. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Catherine Topping, Counsel, (202) 898-3975, <E T="03">ctopping@fdic.gov;</E> Gregory Feder, Counsel, (202) 898-8724, <E T="03">gfeder@fdic.gov;</E> Amy Ledig, Senior Attorney, (571) 213-3644, <E T="03">aledig@fdic.gov,</E> Legal Division; Scott Leifer, Senior Review Examiner, (703) 632-9153, <E T="03">sleifer@fdic.gov,</E> Division of Risk Management Supervision; Dawnelle Guyette, Senior Policy Analyst, (816) 234-8130, <E T="03">dguyette@fdic.gov,</E> Division of Depositor and Consumer Protection; Federal Deposit Insurance Corporation, 550 17th Street NW, Washington, DC 20429. </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">I. Policy Objectives</HD> The Federal Deposit Insurance Corporation (FDIC) monitors, evaluates, and takes necessary action to ensure the safety and soundness of State nonmember banks, <SU>1</SU> <FTREF/> including industrial banks and industrial loan companies (together, industrial banks). <SU>2</SU> <FTREF/> Through 12 CFR part 354 of the FDIC Rules and Regulations (part 354), <SU>3</SU> <FTREF/> the FDIC formalized its framework to supervise industrial banks and mitigate risk to the Deposit Insurance Fund (DIF) that may otherwise be presented in the absence of Federal consolidated supervision  <SU>4</SU> <FTREF/> of an industrial bank and its parent company. <FTNT> <SU>1</SU>   <E T="03">See, e.g.,</E> 12 U.S.C. 1811, 1818, 1821, 1831 <E T="03">o</E> -1, 1831 <E T="03">p</E> -1. </FTNT> <FTNT> <SU>2</SU>  Herein, the term “industrial bank” means any insured State-chartered bank that is an industrial bank, industrial loan company, or other similar institution that is excluded from the definition of “bank” in the Bank Holding Company Act pursuant to 12 U.S.C. 1841(c)(2)(H). State laws refer to both industrial loan companies and industrial banks. For purposes of this proposed rule, the FDIC is treating the two types of institutions as the same. The amended rule would not apply to limited purpose trust companies and credit card banks that also are exempt from the definition of “bank” pursuant to section 1841(c)(2). </FTNT> <FTNT> <SU>3</SU>  12 CFR part 354. <E T="03">See</E> 86 FR 10703 (Feb. 23, 2021). </FTNT> <FTNT> <SU>4</SU>  In the context of this proposed rule, “Federal consolidated supervision” refers to the supervision of a parent company and its subsidiaries by the Federal Reserve Board (FRB). Consolidated supervision of a bank holding company (BHC) by the FRB encompasses the parent company and its subsidiaries, and allows the FRB to understand “the organization's structure, activities, resources, and risks, as well as to address financial, managerial, operational, or other deficiencies before they pose a danger to the BHC's subsidiary depository institutions.” <E T="03">See</E> SR Letter 08-9, “Consolidated Supervision of Bank Holding Companies and the Combined U.S. Operations of Foreign Banking Organizations” (Oct. 16, 2008). </FTNT> Industrial banks are exempted from the definition of “bank” for purposes of the Bank Holding Company Act (BHCA). As a result, both financial and commercial companies can control an industrial bank without being subject to the BHCA's activities restrictions or Federal Reserve Board (FRB) supervision and regulation. Some of the companies recently pursuing an industrial bank charter engage in commercial activities or have diversified business operations and activities that would not otherwise be permissible for bank holding companies (BHCs) under the BHCA and applicable regulations. There has been continuing interest in the establishment of industrial banks, particularly with regard to proposed institutions that plan to implement specialty or limited purpose business models, including those where the operations of the proposed industrial bank would be interconnected with, or reliant on, the operations of the parent company or its affiliates. The FDIC is concerned about increased risk to the DIF in situations where there is a significant degree of dependence on the parent company or affiliates, particularly with respect to the primary business functions of the proposed institution. The FDIC is also focused on ensuring that such business models would appropriately serve the convenience and needs of the community. Dependent relationships raise supervisory concerns because the industrial bank's operations and condition may be vulnerable to any financial distress or operational disruptions at the parent organization. In such circumstances, there may be undue pressures or influences from the parent organization that impair the industrial bank's ability to maintain independent oversight and decision-making at the bank level. Further, where financial distress is experienced across the organization, concerns may develop that negatively impact capital and liquidity levels, earnings prospects, and the capacity of affiliates to fulfill their service commitments or other obligations to the industrial bank. In addition, significant resolution concerns may be presented if the industrial bank's parent company fails or otherwise faces significant financial difficulty that impairs its ability to perform under the agreements required by part 354. An industrial bank could have its business operations disrupted if critical support services provided by a parent company or its affiliates are lost. Additionally, overreliance on parent company support for daily operations could leave the industrial bank with little independent franchise value in the event of a failure. In such a case, the FDIC as receiver potentially would be faced with limited and more costly resolution options, such as establishing a bridge bank or employing a deposit payout. In light of these concerns, the FDIC has ident ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 101k characters. 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