Industrial Banks Q&A


What are industrial banks?

Industrial banks, also known as industrial loan companies (ILCs), are a type of state chartered bank. The deposits of industrial banks are insured by the FDIC. Companies that own industrial banks chartered in certain states are not “bank holding companies” under the Bank Holding Company Act. They can chartered in California, Colorado, Hawaii, Indiana, Minnesota, Nevada and Utah. When were industrial banks created? Industrial banks have been chartered since 1910—predating the creation of the Federal Reserve System by three years and the enactment of the Bank Holding Company Act by 46 years. The word “industrial” in the name stems from the original mission of providing credit to industrial workers overlooked by conventional banks.

What is the business of industrial banks? Many are consumer lenders, engaging in mortgage, auto, credit card and other forms of consumer lending on a nationwide basis. Others offer credit cards to small business, make commercial loans, provide financial services for contractors and one bank even finances taxicab medallions.

How are they regulated? Industrial banks are regulated and examined by the FDIC using the same standards that apply to other state chartered banks. Industrial banks also are examined by their home state regulator in the same manner as all other state banks.

Do federal banking laws apply? Yes, industrial banks are subject to all of the federal and state banking laws that apply to other FDIC- insured state-chartered banks. These include: Restrictions applied to transactions between an industrial bank and a company that controls it or any other company affiliated with the industrial bank; anti-tying laws that prohibit industrial banks from bundling products or services with those of their affiliates; and limits that apply to loans by industrial banks to insiders of the bank and affiliates. Industrial banks are also subject to deposit reserve requirements. The FDIC and state regulators examine commercially-owned parent companies and other affiliates to assess the relationship of such entities with the industrial bank and the effect of such relationship on the industrial bank.

Are industrial banks subject to the Community Reinvestment Act? Yes, they have the same obligations any other state chartered banks. Many industrial banks enjoy superior CRA ratings.

Are they safe and sound? Yes, they have the same obligations any other state chartered banks. Many  enjoy superior CRA ratings. Are industrial banks safe and sound? Industrial banks have been the best capitalized and most profitable banks in the nation. Many more would be formed, to help restore an adequate supply of credit to the nation’s economy. However, the FDIC’s paralysis to accept and approve new bank charters continues. This unnecessary regulatory road block prevents economic growth and has no statutory justifications.



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