House Subcommittee reaffirms the Strengths of Industrial Banks

Today, the  conducted a hearing “Banking Innovation or Regulatory Evasion? Exploring Trends in Financial Institution Charters.” Several witnesses provided verbal and written testimony regarding their views on various banking charters, new advances in technology for financial services, consumer protection and data privacy.

“In the 2 1/2 hours of this committee hearing, there was no dispute that industrial banks are among the safest and soundest financial institutions in the country. Some of the witnesses speculated about doomsday hypothetical scenarios that have never occurred in the nearly 40 year history of modern industrial banks, Further, no details were provided to counter the fact that industrial banks are fully regulated by federal and state authorities and have demonstrated an impressive track record of safety and soundness,” stated Frank Pignanelli, Executive Director, The National Association of Industrial Bankers. (“Industrial Banks” is the most accurate label for these institutions.)

The National Association of Industrial Bankers, the Nevada Bankers Association and the Utah Bankers Association provided a joint letter which was admitted into the Subcommittee record. This letter is available at

Howard Headlee, President of the Utah Bankers Association agreed with concerns raised about data protection, “We concur with Committee members that data protection is fundamental to every bank operation, and we have no reason to doubt that the FDIC, which regulates Industrial Banks and their parents, is equally committed to assuring the security of all bank customer data. We look forward to working on measures that ensure these protections exist for all consumers,” offered Headlee.

Phyllis Gurgevich, President of the Nevada Bankers Association offered,” We are proud of the industrial banks chartered in Nevada. They provide critical financial services to millions of 

Americans. Equally important, they are wonderful community partners who provide opportunities to Nevadans through CRA investment and other engagements with our residents.”

The subcommittee explored a number of issues regarding modern banking. These included data privacy, Federal regulator authority, cybercurrency, opportunities for low income and minority populations, competition between banks and fintechs, etc. There was brief discussion regarding industrial bank regulation by the FDIC and exemption from consolidated supervision by the Federal Reserve.

“Allegations that the Fed is a superior regulator is an insult to the FDIC. As a long time banker, I can state unequivocally that the FDIC and state regulators exhaustively examine all elements of the industrial bank, its parent company and affiliates for compliance with all banking requirements. Indeed, Fed supervised banks have an exponentially higher rate of failure, especially in comparison to industrial banks. Only one industrial bank failed during the great recession, “provided Ray Specht, Chairman, NAIB.

In the written testimony, several witnesses relied upon a much-criticized article on industrial banks written by Arthur E. Wilmarth, Jr., of the George Washington University Law School. A strong critique of this article is available at this link

The premier source of information regarding industrial banks utilized by academic, government and research centers is “A New Look at the Contribution and Performance of Industrial Loan Companies to the US Banking System” by James R. Barth and Yanfei Sun, Department of Finance, Auburn University, 2018. 

“Members of the committee and the witnesses expressed concerns about competition, consumer protection, data privacy, big bank prowess, providing financial services to the underbanked, responding to technology. These are all important questions, and the industrial bank model is clearly an important part of the answer to all of them,” added Pignanelli.