The Utah Center for Financial Services at the University of Utah just released a new comprehensive study “Source of Strength and Consolidated Supervision: A Comparative Assessment of Industrial Banks and Commercial Banks”, by Dr. James Barth and Dr. Yanfei Sun.”
“This new study is impressive. The conclusions underscore the judgement of accomplished scholars – industrial banks are the safest and soundest financial institutions in the country. The authors also document that the supervision provided by the FDIC and state regulators is equal to that of any other bank,” stated Frank Pignanelli, Executive Director, National Association of Industrial Bankers.
Dr. Barth and Dr. Sun provided a detailed analysis regarding the consolidated supervision of the Federal Reserve in comparison to the oversight provided by the FDIC state regulators for industrial banks. The authors gathered and reviewed a tremendous amount of data to provide a substantive assessment. These scholars, well respected in the banking community, concluded in the study: “There is no support for the argument that industrial banks should be subjected…to consolidated supervision by the Federal Reserve. The bottom line is that the evidence presented indicates no corrective legislative action is needed to deal with industrial banks.”
“We’re grateful that these academics were willing to spend the time and effort in addressing the issue regarding supervision of industrial banks. The Utah Center for Financial Services is to be commended for engaging on this issue,” stated Ray Specht, Chairman, National Association of Industrial Bankers.
The study performed by Drs. Barth and Sun also evaluated the allegations that industrial banks are a threat to the nation’s financial system. “Thousands of failed banks had holding companies regulated by the Federal Reserve. Clearly, those holding companies had insufficient financial strength to support the subsidiary banks. In contrast, most industrial banks have ready access to all of the capital they may ever need through a diversified parent. The better overall financial condition of the Industrial Banks has existed for almost every year from 2000 to 2020, which includes the Great Recession,” concluded the authors.
“The Center is pleased to release the report by Dr. Barth and Dr. Sun. This research adds to the Center’s studies on important topics in bank regulation,” stated Al Landon, Director, Utah Center for Financial Services at the University of Utah
James R. Barth is the Lowder Eminent Scholar in Finance at Auburn University, a Senior Fellow at the Milken Institute, and a Fellow at the Wharton Financial Institutions Center. Dr. Yanfei Sun is an assistant professor of Finance at Ted Rogers School of Management. She received a Ph.D. in Finance from Auburn University in 2019.
“The facts presented are indisputable. Criticisms of the industrial bank model are groundless because these institutions are safe, sound, and supervised. We look forward to additional discussions about how industrial banks can further provide secure, innovative, credit to Americans,” added Pignanelli.